Markets Struggle with Brexit Hangover, Pound Sinks

Asian Stocks Dropped/British Pound Plunged – Brexit

Asian stocks dropped and British pound plunged over 2% on Monday while markets wriggled to shake off the uncertainty which had ignited due to Britain’s choice of leaving the European Union. Emotion seemed weak even though the most horrible of the uproar envisaged on Friday when the global stock markets had suffered one of their largest declines in almost five years, had improved. Senior foreign bond strategist at Mizuho Securities, Hiroko Iwaki, had stated that “things are so uncertain that investors still do not have a clear idea how much risk assets they need to sell. But it is safe to assume investors are not yet done with all the selling they need to do. I would not be surprised to see another 10% fall in share prices”. From the several questions regarding the British exit, or Brexit, which have generated are `just how much UK and European economies will slow, how they would negotiate their new relationship and how European leaders would try to improve the collapsing EU’. The world’s most traded stock futures; US S& P dropped 0.4% to 2,011.50, soaring close to the three and a half month low of 1,999 of Friday.

Brexit – First Surprise in Re-Calibration

The widest index of Asia Pacific shares MSCI, beyond Japan, shrank losses to 0.6% since the companies especially with UK exposure were under pressure.Equity strategist at Bank of America Merrill Lynch in Hong Kong, Ajay Singh Kapur had written in a note that they think Brexit could be the first surprise in a re-calibration of the world away from globalisation towards more inward-looking policy making’.He further added that `Brexit has now possibly opened up more uncertainty about the European Union project and that the already crashed down Asian and emerging equity market could receive asset allocation flows from Europe. Nikkei of Japan extended gains to 1.9% which was a fractional rebound after the hefty 7.9% of Friday’s fall. Stocks of Japan had been supported by stronger warnings from the officials of Japan that they would interfere in currency markets in stabilising the yen. However, the dollar still fell 0.3% against the secured yen, trading around 101.81 yen.

Sell-Off in Euro – Exit Referenda Builds

Shares of China also increased with the CSI 300 index as well as the Shanghai Composite both increased around 0.8%. British pound dropped 2% to $1.34, yet some distance from the 31 year low of $1.3228moved during wild trade of Friday. Moreover, euro had also come under additional pressure, falling against the dollar by 0.8% as the investors fret that Brexit would strengthen the anti-establishment mood in Europe and also communicated about breakdown of the union. The chairman of New Sparta Asset Management in London, Jerome Booth, had commented that “there will be sell-off in the euro as talk of other exit referenda builds. This sell-off will be more profound and long lasting and will be not just against the dollar and yen but also against the pound. It would also raise fears of significant loss of values for holders of Eurozone government bonds”. Since December 2010 on Monday, Euro’s weakness aided in pushing the Chinese Yuan to its weakest level against the dollar and dropped to 6.6396 per dollar on opening at 6.6360 a dollar, in comparison with the five and a half year low midpoint level of 6.6375 agreed by the central bank, reaching an intraday low of 6.6469.

Yen soars and Nikkei tumbles as Bank of Japan rejects further stimulus

Yen Scaled High – Nikkei 224 Fell

The stockindex of Tokyo had plunged over 3% on Thursday as mounting yen beat exporters after the Bank of Japan decided against increasing its incentive. Nikkei 225 fell 3.05% to 15,434.14 in trading, late afternoon. The yen had earlier rushed to a 21-monthhigh against dollar in the wake of the BoJ’s intention of leaving its enormous 80 trillion yen asset-buying plan unaffected, since fears on the future of Britain in the EU pound financial markets. Investors incline to buy yen as a means of safe asses in case of turmoil, though the stronger currency seems to be bad for Japanese stocks since it tends to threaten the productivity of the exporting giants of the country.

The yen scaled high as 104.11 against the dollar, in afternoon deal, its strongest level since September 2014. The decision of Bank of Japan had come up on Wednesday, after the Federal Reserve had decided against increasing interest rates and Janet Yellen; its boss had announced a warning on the possible Brexit from the US. Markets in the world have been left in chaos over the past week tension regarding the global economic outlook and in recent days, a rising sense that the referendum of June 23 would be seeing Britons vote breaking away from the European Union.

Weaker Hiring/Uncertainty – Referendum of the EU

Senior economist at Mizuho Securities, Norio Miyagawa stated that `there is nothing in recent economic indicators which would now lead the BoJ to change its economic outlook. But the rising yen would place more downward pressure on consumer prices and so expects the BoJ to ease in July’.

The US Federal Reserve that had been cautiously considering to raise interest rates or not, had held back at its own meeting on Wednesday and had instead downgraded its economic predictions, quoting weaker hiring as well as uncertainty regarding the referendum of the EU. This week’ polls suggested a tight contest in the vote of next week, being a main factor regarding the rush for safe havens inclusive of the yen. FTSE 100 had opened at 0.7% lower on Thursday, a presentation which quickly removed the uneasy gains of Wednesday after four previous days of heavy fall which saw the index fall less than 6000 barrier.

Energy Stocks/Miners Safe from Latest Beating 

The energy stocks and miners only were safe from the latest beating on values. There were comparable falls in France as well as Germany. Moreover the pound was also under pressure against the dollar down 0.4% at 1.41.4 which is an 11% down a year ago. Head of trading at ETX Capital, Joe Rundle had mentioned that the `markets were on the defensive again as traders foreseen the risks of Britain leaving the EU. Since polls indicate more support for Vote leave, City watchers had begun to take the threat rather seriously and began to price in the option of a Brexit.

For the City, it could be big; most of the banks and airlines would have to consider seriously moving outside the UK if a Brexit tends to occur. He further added that a slump in sterling could be a massive boon for some FTSE 100 firms. Miners would be seeing development in their sterling-denominated balance sheet when they sell in dollars and retailers would also probably prefer to stay on in UK though they would want to spin off their European arms’.

US dollar wallows near 4-week lows as Janet Yellen sounds cautious note

Dollar Flanked, Close to Four-Weeks Lows

After the remark of Federal Reserve Chair Janet Yellen failed to toss a lifebuoy to the recently plunging greenback, the dollar flanked up though still reeled close to four weeks lows against a basket of currencies on Tuesday. The index of the dollar that tracks U.S. currency against a basket of six main rivals pushed up 0.1% to 94.017, though it stayed within sight of its overnight low of 93.745, the weakest level since May 11.

However Yellen had remained comparatively enthusiastic regarding the overall U.S. economic outlook, stating that the Fed would hike the interest rate, she provided no fresh clues about timing, calling the last month’s U.S. jobs data as `disappointing’. Sue Trinh, senior currency strategist at RBC Capital Markets in Hong Kong, had commented that `she was positive though compared to her speech of May 27, when she had said a move would have been suitable `in the coming months’, she had not been specific regarding the timing’. The dollar seemed to be under pressure since the Friday reports of the U.S. nonfarm payrolls had indicated the slowest job growth in more than five years in May, suppressing prospects for a near-term U.S. interest rate rise.

Recent Currency Market `Orderly’

The U.S. interest rate futures implicated traders had all but priced out any chance the Fed would raise rates at its policy meeting next week, even before Yellen had spoken. The dollar had upturned its previous losses against the yen and rose 0.2% to 107.81 yen pulling away from the previous session’s low of 106.35, its weakest in a month.

It stayed wary of levels above 109 yen, where it remained as recently on Friday. The Japanese Finance Minister, Taro Aso, earlier on Tuesday informed reporters that he would desist from commenting on the possible response of Japan on the currency market if the yen was to rise further. He also declined to comment on the remarks of U.S. Treasury Secretary Jack Lew over the weekend which described the recent currency market movement as `orderly’ as an indication of caution towards the currency intervention.

Recent Unstable Sterling Marked Hard Rebound

The euro had pushed up 0.1% to $1.1360, reversing toward the earlier sessions’ almost one-month high of $1.1393. The recent unstable sterling marked a hard rebound after dipping more than 1% to three week lows in the earlier session, resulting in several polls ahead of the June 23 poll preferred the chance of British voters choosing to leave the European Union.

However the two polls in Tuesday’s newspaper portrayed Britons narrowly preferred staying the EU, when compared to the surveys released earlier. The pound had added 0.7% to $1.4524 after moving a one-week high of $1.4664 and on Monday had followed a low of $1.4352, its deepest all-time low since May 16. The Australian dollar had risen 0.6% to $0.7413 to one-month high after Reserve Bank of Australia had held policy stable as anticipated. It stated that its decision had been steady with maintainable growth. According to a Reuter’s poll, the central bank is broadly likely to hold rates at record low of 1.75% after its cut in May, with 49 of 52 economist’s surveyed sightingthe RBA standing pat.

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Stronger Yen Weighs on Nikkei

Shares Hit by Yen Strengthening Against Dollar

Winning streak of five meetings for Japan’s Nikkei ended as shares were hit by the yen strengthening against the dollar. Benchmark of Japan, Nikkei 225 index dropped down to 279.25 (1.6% at 16,955.73). Dollar slipped below 110 yen. For Japanese exporters, stronger yen is usually seen as negative.

This resulted due to the Japanese Prime Minister; ShinzoAbe’s announcement, to a delay of a planned rise in sales tax. The rise in sales tax rate to 10% from 8%, planned for the year 2017, has now been pushed back to 2019.In individual stocks, Softbank had increased by 0.4% after the Japanese technology firm had stated that it would be offloading $7.9bn worth of shares in e-commerce giant of China - Alibaba.

 The transaction is said to reduce the stake of Softbank in Alibaba from 32.2% to 28%. The Shanghai Composite, in China, had edged down from 0.1% to 2,913.51 while the benchmark Hang Seng index in Hong Kong ended 54.11 points less at 20,760.98. The S&P ASX/200 index in Australia had closed down 55.39 points (1% at 5,323.17). Kospi index of South Korea was even for most of the session, closing at 1,982.72.

Strength of Yen – Decline of Exporters

Asian stock markets were generally higher on Tuesday tracking gains in U.S. stocks but Nikkei was assessed by the recent strength of yen and weak earnings results. The S&P 500 on Monday which had settled at a record high of 1593.61, lifted by a rally in the technology segment and the earnings sustained to be the main focus in the region. Japan’s Nikkei Stock Average dropped 0.2% to 13.860.86amidst the recent weakness of the dollar as well as the key ¥100 level continued to be elusive.

The dollar-yen pair had been at ¥97.70 from ¥97.77 in New York, late Monday. Nikkei had jumped to 11.9% till April and continues on course for its largest monthly increase since December 2009 irrespective of Tuesday’s drop. The strength of yen together with the disappointing results had led to the decline of exporters. A heavily weighted component, Fanuc, on the Nikkei had dropped to 5.6% after the company had informed that its operating profits slipped by 17% on-year to ¥184.8 billion for the fiscal year ended March 31.

Abenomic Effect on Consumer Confidence 

Ricoh had dropped to 8.4% after its fourth-quarter operating profit had come in at ¥23.0 billion considerably losing guidance and consensus forecasts, apparently owing to a fall in sales of the domestic office equipment as well as larger-than-expected rise in costs. CLSA equity strategist Nicholas Smith, noticing the data for March indicating an increase in household spending and a fall in the jobless rate commented that `regardless of stock price weakness, the signs for Japans’ economy are positive. Some of the data can be attributed to the `Abenomics’ effect on consumer confidence’.

 Household spending had increased to 5.2% in March signifying consumers are showing more inclination to spend whereas unemployment had dropped to 4.1% of the labour force in March from 4.3% in February, which decline to its lowest since November 2008. Industrial production in March had increase by 0.2% on-month for the fourth straight month. Investors would be paying consideration to separate strategy meetings by the European Central Bank and the U.S, Federal Reserve for indications, later in the week.