With global asset correlations once again approaching 1, overnight stocks have been trading in broadly “risk off” mode, following every twist of pound sterling and the rapidly deteriorating British financial situation as “chaos infects” virtually all markets, from China, to European banks, to US equity futures.As a result of ongoing aftershocks from the Brexit vote, coupled with the sudden political chaos in UK politics, where both parties now seem in disarray, with the pound has extended its selloff to a fresh 31-year low dropping below the Friday lows while European equities are dropping to levels last seen in February. Asian shares rebound, as oil, gold advance and steel prices surge in Shanghai.
“It’s going to continue to be a fairly choppy ride,†Michael Hewson, a market analyst at CMC Markets in London told Bloomberg. “Banking stocks will continue to struggle.â€
U.S. stock-index futures indicated equities will deepen declines, after the S&P 500’s worst selloff in ten months following Friday’s U.K. referendum. Contracts on the S&P 500 slid 0.5% to 2,009 in early trading. It earlier erased a drop as Asian equities rallied. Dow Jones Industrial Average futures fell 96 points to 17,150.Â
“We are in for a volatile period but I don’t think it’s one way down,†said Shane Oliver, head of investment strategy at Sydney-based AMP Capital Investors Ltd., which oversees about $116 billion. “The dust will settle and investors will realize there’s a long way to go for all of this and markets will eventually start to grind higher again.â€
The only silver lining overnight was in Spain, where despite initial exit polls suggesting a victory for the left-wing alliance, the final result confirmed a repeat of the December result in which not only alliance will have a majority in parliament, and in fact Rajoy’s PP gained some votes, leading to a rebound in the IBEX, while yields on Spanish 10Y dipped below those of comparable Italian bonds.
Market Snapshot
- S&P 500 futures down 0.3% to 2012
- Stoxx 600 down 2% to 316
- MSCI Asia Pacific up 0.6% to 126
- Nikkei 225 up 2.4% to 15309
- Hang Seng down 0.2% to 20227
- Shanghai Composite up 1.5% to 2896
- S&P/ASX 200 up 0.5% to 5137
- US 10-yr yield down 9bps to 1.47%
- Dollar Index up 0.83% to 96.24
- WTI Crude futures down less than 0.1% to $47.60
- Brent Futures up 0.2% to $48.49
- Gold spot up 0.8% to $1,327
- Silver spot up 0.3% to $17.78
Top Global News
- Battered British Government Seeks Unity to Soothe Brexit Nerves: Osborne says Britain has resolve to cope with hit to economy
- U.K. 10-Year Gilt Yield Drops Below 1% for First Time on Record: yield -9bps to 0.993
- Brexit Adds $380b to Global Negative-Yielding Bond Pile: investors seek haven debt after U.K. votes to quit EU
- Bloomberg View: Markets Were Rational, But U.K. Voters Weren’t, Matthew Winkler writes
- Rajoy Wins as Spain Cleaves to Establishment After Brexit: traditional parties consolidate position as Podemos stumbles
- Spanish Bonds Surge After Rajoy Wins Election With Bigger Margin: Rajoy’s People’s Party consolidates power as Podemos stalls
- Italy Weighs $44b Capital Injection in Banks, Fatto Says: Il Fatto Quotidiano cites government, financial sources it doesn’t identify
- Sanofi, Boehringer Ingelheim Agree to $25b Asset Swap: Boehringer to get animal-health unit, pay EU4.7b
Looking at regional markets, there was some optimism in Asia where some local bourses saw a mild rebound led by the Nikkei 225 (+2.4%) outperforms amid bargain buying following last Friday’s near 8% decline with reports PM Abe instructed Finance Minister Aso to intervene aggressively in response to the market if needed and also instructed the BoJ to ensure liquidity. Furthermore, Japan was also said to consider a JPY 10 trillion fiscal stimulus package in case of excessive JPY strength. Elsewhere, Chinese markets are mixed with the Hang Seng (-0.2%) resuming last Friday’s declines, while the Shanghai Comp (+1.5%) recovered following a firm PBoC liquidity injection and strength in Chinese commodities. Elsewhere, 10yr JGBs trade in positive territory despite the advances in Japanese stocks, as hopes of BoJ easing increased demand for the paper, while the central bank was also in the market for JPY 475b1n in government debt and inflation-linked bonds.
Top Asian News
- Line Delays Setting IPO Price Range Amid Brexit Turmoil: Japan messaging service plans largest tech IPO of the year
- China Weakens Yuan Fixing by Most Since August as Dollar Surges: Reference rate weakened by most since aftermath of devaluation
- Yen Brexit Surge Seen Testing 95 in Threat to BOJ Stimulus Goals: HSBC changes year-end dollar-yen target to 95 from 115
- HSBC, Nomura Fall in Asia as Brexit May Force Costly London Move: Nomura shares complete biggest two-day drop since March 2011
- Pimco, JPMorgan See Asian Bond Stability Appealing After Brexit: Reduced supply gives support as dollar bond offerings drop 18%
