Referendum watch – 6 days to go
After Jo Cox MP’s tragic death yesterday, both the Remain and Leave camps decided to suspend campaigning for a few days so Westminster can pay their respects to the first MP to have been killed in the line of service since 1990. And rightly so. Today is a day for reflection and to pay respects, not for trading insults and bickering across the EU divide.
Fears over EU Referendum fallout reach fever pitch
In the latest sign of concern for the UK’s economic health in a possible post-Brexit world, UK equity funds have suffered their sharpest rate of outflows (investors withdrawing cash from the market) in recorded history. In the week ending June 15th, investors withdrew $1.1bln to mark the eighth consecutive week of net withdrawals from UK equities, which goes a long way to explaining the weakness in both UK stock markets and sterling.
Reiterating this sentiment were yesterday’s Bank of England minutes, which revealed the Monetary Policy Committee’s concerns that the dent in economic growth that could follow a Brexit would result in materially higher inflation and lower output – raising the chances of policy easing in the UK post-June 23rd.
USD/JPY back from the brink
After Kuroda and the Bank of Japan’s decision to hold policy steady earlier this week, there was very little market resistance to a sustained bout of JPY strength, which succeeded in pushing USD/JPY to multi-year lows below 104.00. A fall of almost 3% in a week is relatively rare for a developed market currency, but the expectations for policy easing from the Bank of Japan this week were particularly acute in the face of a strong currency and declining stock markets.
Mercifully, both the Japanese yen and the local stock market have retraced some of the sharp moves seen yesterday, but both USD/JPY and the Nikkei 225 are still significantly lower on the week. Thoughts on Japanese easing haven’t taken a serious knock just yet and markets have shifted their view to Kuroda and his board taking action in July, giving the central bank some time to wait and see the outcome of the UK’s referendum and the Fed’s intentions on policy trajectory.
A quieter end to the week, with little on the calendar
After the slew of UK data this week (weaker inflation, but stronger retail sales and jobs figures), the week ends on a quieter note, with few datapoints from either side of the pond. Nonetheless, ECB President Mario Draghi is due to speak at 1600BST and is bound to be questioned on the contagion fallout on the Eurozone should the UK decide to withdraw from the EU.