Morning Briefing What Brexit Oh that one

When the morning kicked off, the phrase ‘Brexit? What Brexit?’ was still a fair description of sentiment, after Asia-Pacific shares put in solid gains overnight, including the Nikkei. However it’s been a weaker start in Europe, as shares fall in Germany and France and London, across blue chips and mid-caps. To be fair many of these markets had accelerated in the rebound from the Brexit shock, and many remain ‘overbought’ from a technical analysis basis. The FTSE 100 is a case in point. It posted its strongest gain in half a decade last week and ended at a 10-month high, meaning it was also at highs for the year. At last check, Brexit-related stocks were the worst performers: banks, property companies, retailers, airlines; and you could say ‘Brexit winners’ were at the top: gold and silver miners and other resource shares.
Disquiet is steadily building across the sectors widely thought to be the most sensitive to the UK leaving the EU. Airlines, property companies and financial companies, particularly funds and insurers are in the spotlight. EasyJet has said it is planning to move some administrative staff to a location in the European Union in order to ensure it can continue to abide by European airline regulations. We also know that some banks have indicated they will move a small proportion of their staff to the continent. It’s still early days with regards to the trade-related impact, but it’s certainly worth monitoring the situation.
On a related note, the European bank sector is among those that have on average failed to recover since the 24th June. STOXX’s main sector index was still about 18% lower since that date.
The impact of the collapse in sterling is another factor that needs to be considered when evaluating overall market performance both in Europe and in the UK. It’s worth noting that in dollar terms, the FTSE is still down about 7% since the Brexit vote, and in keeping with the well-known blue-chip/mid-cap divergence, the FTSE 250 is about 15% lower in dollar terms. Those readings are obviously calibrated to the 12% collapse of sterling vs. dollar since highs on the morning of 24th June.
That pair was slightly higher at last check, but the outlook is not great. If cable can’t even re-take the high $1.33s in the near term you can be sure the default trade will continue to be to sell it. The low so far on Monday is 1.3227. The impact on sterling from Nigel Farage’s second resignation, this morning, as UKIP leader within the space of about a year has been zero.
The yen is also taking a break from its world-beating advance. Dollar bears will not be particularly worried however, whilst the rate remains below 102.8 yen per dollar. That said, the 24th June ‘gap’ (which is essentially what the huge candle which formed on the charts that day is) hasn’t been filled. So yen bulls should beware strong bouts of upward momentum.
Elsewhere among safe havens, gold remains well bid, and silver overnight hit a 2-year high above $21.
The main news in Asia is what’s turning out to be a hung parliament in Australia, where current PM Malcolm Turnbull will in all probability not secure a majority for his centre-right Liberal Party and the coalition it leads following a general election. The Aussie dollar wobbled but has since regained its poise as markets conclude that the worst outcome is likely to be another cobbled-together government. Australia’s economy remains strong relative to Asia and other large regions. An independent inflation reading out this morning showed its biggest month-on-month rise for 2½ years.
US cash markets are closed as it is Independence Day though stock futures are open and were trading slightly in the black last time I checked. It will be a relatively quiet day on the macroeconomic front. Eurozone producer inflation data were released a while ago and gave a better-than-expected reading on a monthly view. In the UK, a construction sector Purchasing Managers Index fell sharply in June.

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