Global Risk On Rally As Brexit Polls Suggest Remain As Voting Closes, US Banks Rally On Fed Stress Test, ASX SPI200 Futures Up 60 Points

Global equities rallied on Thursday as UK voters went to the polls to decide whether to remain in the EU. European equities were led higher as the most recent YouGov poll suggests the remain vote leads with 52% of the vote as polls in the UK have now closed, the FTSE100 & DAX30 both gained +1.23% & +1.85% respectively, yields on European government bonds rose while the British Pound gained +1.16% against the US Dollar to 1.50 shown on the first chart below. The result of the vote should be known around 7am local time equating to 4pm in Sydney and throughout the day announcements will be released from UK districts with around 50% of the votes announced by 1pm Sydney time. Should the results suggest a likely remain victory expect a rally in risk currencies including the British Pound, US Dollar, Australian Dollar, South African Rand and Mexican Peso and declines in safe havens including Gold, Swiss Franc and Yen. Looking to equities we would expect a big rally in European banks and broadly higher equities globally as well as a tightening of the spread between German & French bond yield with those of periphery nations such as Spain & Italy. Elsewhere PMI data for Germany disappointed overnight, while German manufacturing beat estimates of 52.0 with a reading of 54.4 services & composite data lagged at 53.3 vs 55.0 and 54.1 vs 54.30.  The Euro-zone PMI data was much the same as manufacturing beat expectations (52.6 vs 51.4) while services & composite data disappointed (52.4 vs 53.2 and 52.8 vs 53.0).

US equity markets also rallied on Thursday as both initial & continuing jobless claims fell to 259,000 vs 270,000 expected and 2.142m vs 2.150m expected, initial claims have now remained below 300,000 (a number considered by many economists as a healthy labour market) for 68 weeks straight which is the longest stretch since 1973. The S&P500 & Nasdaq100 gained +1.34% & +1.42% while the US Dollar index fell -0.69%, banks led gains up +2.09% as results from the Fed’s stress tests showed all 33 big banks have enough capital to withstand severe economic shocks including one scenario assuming 10% unemployment and negative yields. The next phase of testing set to be released on June 29th will assess whether firms have enough capital to increase dividends and buy backs.

Both WTI & Brent crude oil were higher on Thursday, up +1.99% & +2.06% respectively helping boost gains across commodities as Copper gained +1.38%, Natural Gas +0.78% while Iron Ore declined -0.76%. Unsurprisingly with the risk on rally precious metal Spot Gold declined -0.74% while Silver was up a modest +0.15%.

Locally the ASX200 climbed +0.18% on Thursday and the market looks set for a decisively stronger open this morning with ASX SPI200 futures up 60 points in overnight trading.

Data releases:

·         Brexit referendum Final Results 4:00pm AEST

·         German IFO Business Climate Survey (MoM Jun) 6:00pm AEST

·         US Durable Goods Orders (MoM May) 10:30pm AEST

·         US University of Michigan Consumer Confidence Survey (MoM Jun) 12:00am AEST

·         US Baker Hughes Rig Count (Jun 24) 3:00am AEST


Source: Rivkin, Esignal, Amibroker

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.

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