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Calmer Conditions as Risk Recovers

Published June 29, 2016
  • A second day of quiet, normalized trading conditions has been welcome news across markets
  • Stock exchanges from Tokyo to Frankfurt have been flashing green all night and US and Canadian equities are set to follow suit with higher opens expected at the bell
  • The safe haven US dollar is lower along with gold and yields on German, UK and US government debt have all risen as the flight to safety ebbs and risk appetite improves
  • WTI oil prices are also enjoying a second day of gains as front month prices trade 1% higher to $48.35 a barrel
  • The Canadian dollar has caught a slight bid as well and USDCAD has eased back to test the 1.3000 handle 
  • US data this morning was relatively strong with the one blemish coming from a measure of personal income for May which rose 0.2% compared with 0.3% expected – however, April figures were revised upwards to a gain of 0.5% from 0.4% previously
  • Personal consumption was inline with expectations for May, rising at a 0.4% clip and PCE core prices for May also printed bang on at +0.2%
  • EU leaders continue meetings in Brussels today, this time without outgoing UK PM David Cameron.  The crux of the meetings is simple: there are still far many more questions than answers and the situation remains fluid.
  • There is no precedent on exactly how one leaves the EU, and thus the road map is been draw as the UK drives along it…
  • …the first formal step that must happen is invoking Article 50 of the EU's Lisbon treaty which will then trigger formal institutional negotiations between the UK and the EU's 27 partners…
  • …of course that can't happen until there is a new UK PM and Parliament, which looks like it won't be resolved until October under a general election
  • Expect the confusion to continue for many months with leaders being very short on specifics because ultimately they do not know what this will look like.  The EU supports the movement of capital, trade, services and people across its member countries – with the UK now wishing to leave all of that is up in the air.

Chart: USDCAD remains above the key 21 day moving average at 1.2887 (white), but mired in tight range.