Global stocks recover but yen on the rise again as markets still nervous

Global stocks attempted a strong rebound yesterday as the immediate shock of the UK vote to leave the EU appeared to dissipate. However, risk sentiment was still very weak as the pound made only a modest recovery and the yen was back on the rise again today.

The S&P 500 in the US closed 1.8% higher on Tuesday, while in Europe, London’s FTSE 100 closed up 2.6%. Asian stocks on Wednesday were mostly positive too but currency markets remained uneasy.

The pound was hovering around yesterday’s close at 1.3340 dollars and the euro was also stuck in a tight range and firmed to 1.1071 dollars in late Asian trading.

The greenback was down though against the yen, slipping to 102.26 as the yen advanced against most major currencies in today’s Asian session. The dollar was boosted yesterday from better than expected GDP and consumer confidence data, but was weighed down today from comments by Fed governor Jerome Powell. Speaking in Chicago, Powell said that last week’s Brexit referendum has shifted global risks to the downside, dampening the prospect of future US rate rises.

In Japan, weaker-than-expected retail sales failed to dent the yen’s strength. Retail sales in May missed estimates of a 1.6% drop to decline by 1.9% year-on-year, in a further sign that consumer spending in Japan remains fragile. Japan’s prime minister, Shinzo Abe, said on Wednesday that the government is ready to mobilize all policy tools to support the Japanese economy and small firms. He also urged the Bank of Japan to provide ample liquidity to the market following Britain’s surprise vote to leave the EU.

Financial markets were given little indication from yesterday’s EU summit as to what to expect from a future relationship between the EU and Britain outside of the organization. The EU has insisted that negotiations with Britain cannot start until after Article 50 has been triggered, which is not expected to happen until September at the earliest when a new Conservative leader has been elected.

The Chinese yuan continued to come under pressure from the Brexit uncertainty as it risks adding further challenges to a slowing Chinese economy. The yuan touched a fresh 5½-year low of 6.6540 per dollar in onshore trading today.

The best performing currencies in Asia were the Australian and New Zealand dollars, which advanced for a second day against the US dollar. The aussie was last up at 0.7418, while the kiwi rose to 0.7095.
Higher commodity prices provided some support to the aussie and the kiwi as crude oil prices continued to head higher after being boosted yesterday from a bigger-than-expected drawdown in US crude stocks. WTI oil futures were 1% firmer at $48.35 a barrel in late Asian trading.

Looking ahead to the rest of the day, economic sentiment data for the Eurozone and flash German CPI are due in the European session, while in the North American session, personal income and spending as well as pending home sales out of the US will be watched.