The D-day Finally Arrives
In or Out? This is the burning question on everyone’s mind today, as the European Union (EU) referendum polls get underway in Britain. People all across the globe look on with bated breath to witness the historic outcome, after lengthy discussions that stretched on for months on end. The direction of the Pound from here onwards, which has become a barometer of the vote, also sits on a knife-edge.
There is a slew of economic releases scheduled today on both sides of the Atlantic. However, these data points are most likely to be overshadowed by the news flow emanating from the UK referendum. Data showed that business growth in the Eurozone suffered a setback due to a marked slowdown in service sector growth. In the US, weekly jobless claims, flash manufacturing PMI and new home sales data for May is also on tab.
Pound Sterling – UK Markets
The day of the EU referendum has finally arrived, which certainly is the biggest global risk event of the year. Britain will take the final call today either in favour of Remain or Leave, which will lay the future roadmap of the nation. The financial and political community worldwide are expected to remain on edge as polling gets underway in the UK. Early in the session, Sterling rose to a six-month high level against the greenback, fuelled by hopes that the “Remain” vote will emerge victorious. It will be interesting to see whether the Pound will be able to sustain these gains as the day progresses.
Looking back, the months building up to this historic vote has truly been a roller-coaster ride. Politicians, central bank governors the world over, renowned economists and last but not least, reputed international organisations have all hitched a ride on the EU referendum bandwagon. Opinion polls went back and forth, leaving the Pound battered and bruised. Volatility in the Pound is expected to intensify over the next 24 hours.
US Dollar – US Markets
The greenback ended lower against its major peers yesterday. The US Fed Chairwoman, Janet Yellen, concluded her testimony in front of the US House Financial Services Committee on an optimistic note, a far cry given the tone of her statements in the past couple of weeks. The Fed Chief stated that the current weakness in the US job market is believed to be a “transitory phase” and assured that the nation will witness a pickup in growth eventually. In fact, during day one of her testimony, she had requested market participants to avoid placing too much emphasis on a single report. On the data front, the US house price index advanced less than anticipated in April. On the other hand, sales of previously-owned homes rose to a more than nine-year high level in May, suggesting that the nation’s housing market remains on solid footing. Separately, the number of US mortgage applications rebounded last week, buoyed by a sharp increase in refinance applications.
Today, market participants await the release of US Markit Manufacturing PMI and weekly jobless claims data.
Euro – European Markets
The Euro is trading higher against the US Dollar this morning. The private sector activity in the Euro zone delivered a mixed result this month. The preliminary reading of the region’s manufacturing PMI advanced above expectations in June, while the services PMI came in less than expected. Meanwhile, Germany’s private sector expanded at a slower pace in June. The nation’s manufacturing PMI accelerated this month, boosted by a robust increase in new export orders. However, the PMI sub-index for business activity in services dropped, hurt by weaker growth in new business and output. Separately, the French private sector activity contracted for the first time in four months in June, as the country has been gripped by nationwide labour strikes this month. The nation’s manufacturing sector was again the main source of weakness this month, which suffered its worst month since the start of 2015.
Yesterday, the Euro zone’s consumer confidence index unexpectedly deteriorated for the first time in three months in June.
Other Currencies – Highlights
The Japanese Yen has reversed its previous session gains and is trading lower against the greenback this morning. Data released earlier in the session showed that Japan’s manufacturing sector contracted in June for the fourth month in a row, as both production and new orders declined, led by a sharp drop in global demand. On the other hand, the nation’s leading economic index, a measure of the future economic activity as well as the coincident index, that reflects the current economic activity, advanced in comparison to the previous month’s figures. Separately, the Bank of Japan (BoJ) board member, Takahide Kiuchi, called for a review of the central bank’s negative interest rate policy and warned that demerits of its massive monetary stimulus package were far outweighing the benefits. Further, he added that the BoJ is not likely to attain its 2.0% inflation target by the end of March 2019, citing sluggish consumption and low wage hikes.
Going ahead, market participants look forward to the BoJ’s summary of opinions report, scheduled for release overnight.