Equity Markets Rally On Central Bank Speculation, US Crude Inventory Decline Boosts Commodities, ASX SPI200 Futures Up 73 Points

Global equity markets rallied for a second day as they continue to recoup losses following the immediate aftermath of the Brexit referendum. Growing speculation that central bankers will ease monetary policy is helping boost sentiment, recent comments from Mario Draghi calling for global policy alignment, the Bank of Japan’s Kuroda stating that further funds can be injected if needed, the likelihood of the Bank of England cutting rates in the second half of 2016 and expectations that the next Fed rate hike will not occur until 2018 has helped bid up risk assets.

European equity benchmarks were higher on Wednesday, the DAX30 gained +1.75%,the FTSE100 gained +3.58% to have recovered to pre-Brexit levels as the FTSE250 which is a better representation of the Brexit impact domestically increased +3.22% however continues to lag behind the benchmark index shown on the chart below. The Euro rose +0.48% as the British Pound, chart 2, which has become the most closely watched sentiment gauge closed +0.78% higher, still down 10.5% from its highs last Thursday. It was a fairly quiet night for data in Europe with the only notable release being German CPI which remained steady at +0.3% year-on-year, while dropping to 0.1% in June from +0.3% in May.

In the U.K. the political turmoil continues with British Labour leader Jeremy Corbyn ignoring a passing vote of no confidence by his party as well as calls from former leaders Ed Miliband and Gordon Brown to step down. Corbyn has a strong grassroots backing which may make it difficult to remove him as the party leader, however many Labour lawmakers have made it clear they blame a half-hearted campaign by Corbyn to convince the public to vote to remain in the EU. Thursday will mark a deadline for conservative party members to be nominated to replace outgoing PM David Cameron with MP Stephen Crabb launching his bid for the leadership overnight promising to heal the “bad blood” within the party. Other possible candidates include former London Mayor Boris Johnson who was the face of the leave campaign and home secretary Theresa May.

In the US both the S&P500 & Nasdaq100 closed higher, up +1.70% & 1.73% respectively as the US Dollar index fell -0.59%. Personal consumption expenditure (PCE), a key data point for the FOMC, was released on Wednesday with the gauge of consumer purchases increased 0.9% from one year prior while core PCE which excludes volatile measures such as food and energy remained stable at 1.6% from May 2015.

Commodity prices were boosted overnight as US crude oil inventories declined by 4.053 million barrels compared with expectations of a 2.5 million barrel draw, both WTI & Brent crude oil gained +4.24% & +3.36% respectively. Elsewhere Copper closed +0.60% higher, Iron Ore +0.45% while Natural Gas finished -1.85% weaker after reaching the highest levels since August 2015. Precious metals spot gold & silver both closed higher, up +0.56% & +2.90% respectively.

Locally the ASX200 climbed +0.77% on Wednesday and the market looks set for another strong open this morning with ASX SPI200 futures up 73 points in overnight trading. If you’re interested in trading global markets but aren’t ready for the risk,


Data releases:

·         Japanese Industrial Production (YoY May) 9:50am AEST

·         Australian Private Sector Credit (YoY May) 11:30am AEST

·         Japanese Housing Starts (YoY May) 3:00pm AEST

·         German Retail Sales (YoY May) 4:00pm AEST

·         German Unemployment (MoM Jun) 5:55pm AEST

·         U.K. GDP (YoY Q1) 6:30pm AEST

·         Euro-zone CPI (YoY Jun) 7:00pm AEST

·         US Initial & Continuing Jobless Claims (Jun 25th & 18th) 10:30pm AEST

·         Canadian GDP (YoY & MoM Apr) 10:30pm AEST

Source: Rivkin, Bloomberg

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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