Weekly Market Update 26/06/16-01/07/16
Brexit scenario materialized as the “Leave” campaign won with 51.9% of the vote and “Remain” obtained 48.1%. Such a slight majority shows the low level of statistical robustness of polls before the referendum. The British Pound plunged, as expectations grew that “Leave” would win, against the Greenback, with a weekly loss of 687 pips. The rate closed at 1.3660 (-4.79% weekly), but last Friday Cable lost 1180 pips sinking the rate intraday below both the 2008-2009 lows and the level that was traded when George Soros and other hedge fund managers pushed the pound outside the European Exchange Rate Mechanism back in 1992. The US dollar gained against the Swiss Franc 111 pips, with UsdChf at 0.9706 (+1.15% weekly). The Euro gained 252 pips weekly against the British Pound but on Friday alone gained 456 pips. The optimism that was spread during the week triggered more aggressive risk reversal trades when it was clear that on Friday risk appetite would disappear. EurGbp closed at 0.81 (+3.12% weekly) and EurUsd lost 191 pips weekly to 1.1083 (-1.69%). The Canadian dollar slid as well against the Greenback, with a loss of 99 pips. UsdCad closed at 1.2988 (+0.76% weekly). The Japanese Yen soared with UsdJpy down 188 pips to 102.2 (-1.84% weekly). Both Kiwi and Aussie dollar gained against the Greenback: AudUsd rose 75 pips to 0.7470 (+1.01% weekly) and NzdUsd rallied to 0.7119 (+1.06% weekly).
Volatility was the best asset class as the VIX index rose 36.13% last Friday and 13% weekly. Safe haven assets like Gold rallied, and the shiny metal closed at 1,315.22 $/oz (+1.88% weekly). The commodity made intraday a new 2016 record high but retraced. Silver rose 2.06% weekly and retraced as well. In the FX and commodity market as well there were several spikes that suggested a reversal, thus risk appetite may increase again. Crude Oil closed at 47.72 $/barrel (-2.04% weekly). Volatility is expected to stay high after several months of compression. Central Banks may coordinate actions to keep liquidity high for banks that need foreign and local currencies as well but fear of a contagious effect across continental Europe will keep instability above its trend and an underweighting of equities among institutional investors may continue. It is not very surprising that continental European indices did worse than in UK. The FTSEMIB in Italy lost 12.48% last Friday while the FTSE100 in UK lost 3.15%. in 5 trading sessions in The US, the S&P500 lost 33.81 points to 2,037.41 (-1.63% weekly). In Japan the Nikkei225 slid 647.64 points to 14,952.02 (-4.15% weekly). NSFX managed the Brexit event well and the choice of deleveraging protected clients as directional trades Brexit/ No Brexit were reflected in prices very rapidly and less than optimal execution conditions in the interbank market could have wiped the margin just after the execution of the trade. Political instability will remain high as Cameron, UK Prime Minister resigned and Scotlands Government could veto Brexit. UKs Labour Party leader Jeremy Corbyn is now facing an uncertain future. In Europe, leaders want the Uk out of the EU before 2 years because any attempt of buying time would make the European Union weaker. If another Eurozone member were to hold a referendum, it would probably be the end of both Eurozone and The EU. Besides political considerations if political leaders do not understand the polarization process toward extremism that is underway in Europe (UK included) and do not optimize the decision making process in European Institutions, 60 years of efforts would leave 2 generations with a much more complicated future. Spanish General Election Results could have an impact on the Euro during the opening Sunday evening spilling over to Mondays session. During the US session Boards of Governors of the Federal Reserve System (time n/a) would present a result of bank stress tests regarding the biggest US banks. On Tuesday the S&P/Case Shiller data at 13:00 GMT will be followed by the US Consumer Confidence data at 14:00 GMT. On Wednesday Eurozone Consumer Confidence at 09:00 GMT and then EIA Crude Oil Stocks Change at 14:30 GMT. On Thursday, UK Gross Domestic Product Data will be released and then the Eurozone Consumer Price Index at 09:00 GMT. At 11:30 GMT will be the turn of the ECB Monetary Meeting Accounts. The Asian session will start with the Japanese CPI at 23:30 GMT followed by the Tankan Index at 23:50 GMT. Relevant data release would continue on Friday with the Chinese Non Manufacturing PMI at 01:00 GMT and then Swiss Retail Sales Data at 07:15 GMT. At 09:00 GMT Eurozone Unemployment Rate and then ISM Manufacturing data at 14:00 GMT. US Baker Hughes Oil Rig Count at 17:00 GMT would be the last event in the calendar.
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