ECB Stands Ready For Brexit Scenario, Janet Yellen Says Fed To "Proceed Cautiously" In Senate Testimony, ASX SPI200 Futures Up 15 Points

In a speech to lawmakers in Brussels on Tuesday European Central Bank President Mario Draghi reaffirmed that the ECB “stands ready” to act in the event of a Brexit. Although it would be difficult to fully estimate the impact of a Brexit on markets and the EU “the ECB is ready for all contingencies following the U.K’s EU referendum”. Mr Draghi was also given a boost on Tuesday as a German court dismissed challenges to stop the Bundesbank participating under the ECB’s OMT (Outright Monetary Transactions) program launched in 2012 which has never been called upon stands ready to support Euro-zone government for financial assistance with the aim of preventing divergences in short-term bond yields. European equities rallied with both the DAX30 & FTSE100 gaining +0.54% & +0.36% respectively while the British Pound highlighted on the image below, traded at the highest level since the referendum data was announced in February as momentum has recently swung in favour of the Remain vote. 

Across the Atlantic US equity markets were also higher as both the S&P500 & Nasdaq100 gained +0.27% & +0.30% respectively as Fed Chair Janet Yellen testified before a Senate Banking Committee that “proceeding cautiously in raising the federal funds rate will allow us to keep the monetary support to economic growth in place while we assess whether growth is returning to a moderate pace, whether the labour market will strengthen further, and whether inflation will continue to make progress toward our 2 percent objective”. On the disappointing May employment report she warned against overreliance on a few monthly readings that “it is important not to overreact to one or two reports” and that “labour market conditions still look favourable” and the market will look to the June payroll figures to assess whether May was an anomaly or perhaps part of a bigger trend. Overall the testimony leaned to a cautious and dovish tone in contrast to multiple Fed President and Janet Yellens own comments in May for the likelihood of a June or July hike suggesting the disappointing May payroll figures have significantly concerned the FOMC. The US economy still faces headwinds from both weak productivity growth and low business investment as “The FOMC continues to anticipate that economic conditions will improve further and that the economy will evolve in a manner that will warrant only gradual increases in the federal funds rate”. Finally risks to the economy were also cited including those from outside the U.S. including the Chinese economy and Thursdays Brexit referendum with the central bank standing by ready to act if needed.

Commodities were broadly mixed as the US Dollar index gained +0.43% with both WTI & Brent crude oil falling -1.05% & -0.06% respectively while both Natural Gas & Copper gained +0.76% & +1%. Precious metals Spot Gold & Silver both declined -1.68% & -1.89% as subsiding fears over a potential Brexit reduce safe haven demand. Other measures of safe haven demand also declined with the Yen falling -0.78% against the US Dollar while German 10 year government bonds were unchanged as the yield remained at +0.05%.

Locally the ASX200 closed +0.33% higher on Tuesday and the market is set to open stronger again this morning with ASX SPI200 futures up a further 15 points. The Reserve Bank of Australia released the meeting minutes from June that was largely in line with expectations, highlighting GDP growth in the first quarter was stronger than expected reflecting some expansion in non-mining activity which was supported by historically low interest rates. Further declines in mining investment is likely to be largely offset by resource exports however any appreciation in the exchange rate could complicate this adjustment. The minutes highlight that unemployment remained stable however that employment growth momentum have lost some momentum, which was also further evidenced by last week’s unemployment data showing that while 17,900 new jobs were added these were all part time.

If you’re interested in trading global markets and still need practice, click here to open a free $100,000 Rivkin Trader account. 

Data releases:

·         Australian Westpac Leading Index (MoM May) 10:30am AEST

·         US House Price Index (MoM Apr) 11:00pm AEST

·         FOMC Chair Janet Yellen Continues Testimony on Monetary Policy at the House Financial Services Committee 12:00am AEST

·         US Existing Home Sales (MoM May) 12:30am AEST

·         US Crude Oil Inventories (June 17th) 12:30am AEST


Source: Rivkin, Amibroker, Esignal

To view the Rivkin economic calendar and Global Markets matrix, members can click here.

This article was written by James Woods - Global Investment Analyst, Rivkin Securities Pty Ltd. Enquiries can be made via info@rivkin.com.au or by phoning +612 8302 3600.

Complex product warning

This article contains information about foreign exchange contracts, which are considered complex financial products. Please click here to read ASIC's foreign exchange trading article before considering an investment in foreign exchange contracts. 

This article contains information about CFDs, which are considered complex financial products. Please click here to read ASIC's "Thinking of trading contracts for difference?" document before considering an investment in CFDs.
comments powered by Disqus

DISCLAIMER: Rivkin aims to provide clear and simple information to those visiting our website. If any part of this disclaimer does not make sense, please phone Rivkin and ask to speak with a member of our Dealing and Relationship Management Team. Rivkin provides general advice and dealing services on securities, derivatives and superannuation (SMSF). Rivkin also provide SMSF administration and accounting services. Rivkin does not provide advice that takes into account your, or anybody else's, investment objectives, financial situation or needs. We strongly suggest that you consult an independent, licenced financial advisor before acting upon any information contained on this website. Investing in and trading securities (such as shares listed on the ASX) and/or derivatives (such as Contracts for Difference or 'CFDs') carry financial risks. CFDs carry with them various additional risks that differ from more simple securities such as fully-paid company shares. Some of these risks include not owning the underlying instrument from which a price is being derived, settling trades 'over the counter' with a financial institution rather than on a stock exchange, and using leverage to gain access to trades that may have a higher face value than your initial deposit. This risk of leverage means that it is possible to lose more than your initial investment. Our aim is to create more life choices for our clients, which means improving the wealth of clients throughout many market cycles by nurturing a relationship spanning many years. If you are not comfortable with your understanding of the risks involved before using a Rivkin product and service, please contact our office to seek further information or a Product Disclosure Statement, or make an appointment to sit with one of our friendly financial experts. It is in our interest for your Rivkin experience to be a rewarding and comfortable one. Rivkin is a trading name of Rivkin Securities ABN 87123290602, which holds Australian Financial Services Licence No. 332 802.