Morning Briefing Gove bid tests Brexit bounce

Initially published 1030 AM BST; updated 1107 AM BST

• So it goes on. Is it a mirage? A bull trap? The remarkable revival of risk seeking continues. Look across Asia, and all you see everywhere is what might be an incredible lightness of stocks — tracking a solid US session beforehand — or it might be credible. We’re still not sure, because all the indications we had in the lead-up to the historic sell-off in the immediate aftermath of Brexit, told us that the rout would last much longer.
• Instead, the safe-haven yen was on the defensive for a second day, Nikkei rose a reasonable amount and most stocks in Asia did too, looking at MSCI‘s wide-ranging APAC index which includes shares from all major markets in that region with the exception of Japan. That rose 1.5%.
• Most infamously now, FTSE 100 is evens on the day before the Brexit vote. Bargain buying is part of the reason. And so is the fact that the SNB probably remained in the market after its rare admission last week that it was selling francs. It was the first push for investors to take a second look at risk. The ECB, the BoJ and the BoE’s various separate pledges to clamp down hard on extreme instability in any of its manifestations was the next best thing to a joint pledge of concerted action, and it worked.
• So what do we put this lingering inescapable apprehension down to? Why have benchmark JGB and German bund yields set fresh record lows over the last 24 hours? Why is gold holding close to its closing price on the 24th June? Why is the yen‘s retreat similarly tardy and unconvincing? In other words: is the sell-off truly over? Or has baseless speculation that Brexit might be delayed or even in the end denied entirely, stoked an unrealistic rally of risky assets?
• This morning, hints of the self-deceptive feel to politics–Boris Johnson backtracking, Jeremy Corbyn refusing to resign–have been complicated even further by the largely unexpected emergence of Michael Gove, another prominent Leave campaigner, but further to the right of BoJo, as another candidate for the Conservative leadership.
• All the above said, there are signs this morning that what looks to me like the market’s post-Brexit delusion is fading. That conceit, again one which has been partly fuelled by BoJo and his ilk, is that we won’t need to compromise on the free movement of labour in order to get the best access to the single market. EU leaders have begun to close ranks even more firmly on the issue now. And Nigel Farage has floated a compromise on reduced funding to the EU project, but not on immigration.
• As I write this, the yen is regaining its bid tone; the FTSE 100 is ticking lower, as is the DAX. The euro is off, after recouping to as high as $1.1134 in Asia following its regression to a one-month low in the $1.09s last week. It last stood at $1.1121. The pound was struggling to hold its ground against the euro, with the rate approaching £0.83, and the bid against the dollar looked even more vulnerable by eye; last at $1.3482, still down about 7% this month, though not gapingly far from today’s $1.3495 high. (A widely held view right now is that the pound is a sell near $1.35).
• On the economic calendar today–which in all seriousness will remain less than compelling versus Brexit-related events, till Friday at least–we’ve already had Eurozone inflation, which was a bit better than expected at +0.1% year-on-year versus zero forecast. We will have ECB minutes coming at 1230 BST, US Weekly Claims of course as it’s Thursday, and Canadian GDP. The Chinese and Japanese industrial data on Friday remains the most important non-Brexit scheduled economic news, in our view.