Good morning.
Referendum Watch – 10 days to go…
With just over a week until we take to the booths, Sterling now sits at its lowest levels against the US dollar since mid-April, as Sterling volatility climbed for the sixth consecutive week – now hitting highs not seen since the start of 2009. The culprit? An ORB poll released late on Friday for the Independent put the leave camp ahead by its biggest margin yet, taking 55% of the vote in the 2,000 person sample. Taking this latest result into account, the last three months of polling puts the remain and leave camps in a dead heat – putting more pressure on public figures, politicians and the markets themselves to make their case ahead of June 23rd.
Last week we saw strong UK data overlooked by Sterling as polls took precedence and we may see this pattern repeated despite CPI, jobs data and retail sales due on Tuesday, Wednesday and Thursday respectively. The terribly thin liquidity we observed last week is likely to persist, which could result in whipsaw price action over the next five days.
The Bank of England’s rate decision and minutes release on Thursday will be watched closely for any hints on the MPC’s plans in the wake of the EU Referendum, as this could be the last opportunity for Mark Carney and his board to attempt to influence the voting public.
Odds of a hike at Wednesday’s Fed rate decision dwindle to zero
After May’s particularly poor jobs report in the US, continued jitters over the UK’s EU Referendum and commodity market turmoil, markets have priced out any chance of a hike from the Federal Reserve on Wednesday. The focus will instead be on the release of the Fed’s economic projections, which will be eyed for signals on the timing of the next hike in interest rates. At the time of writing, markets see it more-likely-than-not that December’s meeting will see the board lift rates. However, with the outlook clouded by major macro risks in the UK and elsewhere, these forecasts should be viewed as unreliable at best and misleading at worst due to the fickle nature of these metrics and their tendency to swing at very short notice.
Bank of Japan ready to take action – if not June, then in July
The Bank of Japan’s quandary continued today, as the Japanese Yen advanced to its strongest level since 2014 against the US dollar and within spitting distance of the psychological 100 mark, the onus is on Bank of Japan governor Kuroda and his board to unveil something more effective at Thursday’s rate decision if not in July. Playing on the back of his mind must be the effect of the BoJ’s measures earlier in the year, wherein shifting rates to their lowest levels in history somehow resulted in a stronger currency, a weaker export outlook and unseen volatility in local bond, equity and currency markets. A more thoroughly thought out plan will be required to sooth markets this time around.
Have a great day.