Financial markets review – July 1 2016

Monday 27 June 

• UK Prime Minister, David Cameron, addressed Parliament and said, in reference to the vote to leave the European Union, ‘the decision must be accepted and the process of implementing the decision in the best way possible must now begin’.
• The Euro area M3 money supply print increased to +4.9% YoY which was a little more than expected.
• In the US the flash June services PMI was unchanged for this month at 51.3 although that was a little disappointing relative to the consensus expectation for a rise to 52.0. Advance goods trade balance for May showed a slightly widening deficit to $60.6bn (from $57.5bn).

Tuesday 28 June

• Markets globally were in a much improved mood as a tentative rally swept through risky assets following two days of heavy losses. The Pound closed up +0.90% versus the US Dollar at 1.3344. Equity markets emerged from the abyss. The FTSE 100 (+2.64%), Stoxx 600 (+2.57%), DAX (+1.93%), IBEX (+2.48%) and FTSE MIB (+3.30%) all closed up as beaten down banks staged a recovery. UK financials had a much better day although that was before Moody’s revised its outlook on 12 British banks and lenders, as well as cutting the outlook for the UK banking system to negative from stable.
• Swiss yield curve traded negative the whole way out the curve. The longest dated Swiss government bond due in 2064 (so 48 years) touched -0.0082% at one stage before settling at +0.011% by close.

Wednesday 29 June

• US personal income rose +0.2% MoM in May which was a little less than the +0.3% expected. Personal spending rose +0.4% MoM as expected while both readings also received a marginal upward revisions on the April numbers. In terms of inflation data, both the PCE deflator and core readings came in at +0.2% MoM as expected for May. That saw the YoY rate for the former to +0.9%, while the YoY rate for the core has held steady at +1.6%. Pending home sales in May were down -3.7% MoM (vs. -1.1% expected).
• The European Commission released its latest sentiment surveys. The headline economic confidence indicator held in relatively well at 104.4 for June (vs. 104.7 expected). German CPI for June rose a little less than expected (+0.1% MoM vs. +0.2% expected) although that has lifted the YoY rate to +0.3%.
• In the UK mortgage approvals rose 67.0k in May (vs. 65.3k expected)

Thursday 30 June

• The Bank of England chief, Mark Carney, stated that uncertainty could remain elevated for some time and that ‘the economic outlook has deteriorated for the UK’, some monetary policy easing will likely be needed over the summer. This has caused the Pound to drop further against US Dollar.
• In the US initial jobless claims were up 10k last week to 268k which is pretty much the four-week average. Meanwhile the Chicago PMI printed at 56.8 for June (vs. 51.0 expected) which is a 7.5pt rise from that low May print and actually the highest reading since January last year.
• The CPI headline for the Euro area in June was slightly higher than expected (+0.1% YoY vs. 0.0% expected) after being at -0.1% in May. Core inflation rose one-tenth to +0.9% YoY after expectations were for no change.
• Q1 GDP print for the UK was left unchanged in the final revision at +0.4% QoQ, German unemployment also held steady at 6.1% while the flash June CPI print for France came in at +0.2% MoM as expected.

Friday 01 July 

• The June PMI’s have been released in China with the non-manufacturing PMI rising 0.6pts to 53.7 (highest since March) while the manufacturing PMI declined one-tenth to 50.0 as expected. The private Caixin manufacturing survey revealed a 0.6pt decline to 48.6 which is the lowest since February. Meanwhile in Japan headline inflation has moved further into deflationary territory in May at -0.4% YoY from -0.3%. Core CPI printed at -0.4% YoY declined one-tenth also to +0.6% YoY. Japan’s jobless rate has held steady at 3.2% in May, while household spending has fallen to -1.1% YoY in the same month (from -0.4%).

• In Europe, both German and the UK manufacturing PMI for June came in above expectation, the UK figure came was significantly above forecast at 52.1 vs 49.9.