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Pause in the Brexit Campaign Gives Markets Hope

Published June 17, 2016
  • The savagely tragic shooting of British MP Jo Cox yesterday has caused a pause in the Brexit campaigning. Believing the shooting lends support to the “stay” side risk assets have rallied sharply from yesterday’s lows. This tragic murder could very well mean the British choose to stay in the EU and the markets certainly prefer that outcome.
  •  With the Fed out of the way, the UK referendum is the single biggest driver of market action at this time and will be until after the vote on the 23rd. European banks are warning clients to expect heightened market volatility and pricing gaps as liquidity becomes strained going into next week. Nobody will want to be carrying large positions going into the vote.
  •  Stocks and commodity prices have rallied across the board. Shares in London and Tokyo have led the way with gains over 1%. Oil is the biggest commodity mover with Brent up 3.1% to 48.40 and WTI up 2.0% to 47.13. US stocks have just opened slightly to the downside with the S&P500 down about 7 points. The TSX has opened with a gain of 41 points on the back of the rally in oil prices.
  •  Gold has had quite the ride in the past 24 hours. It hit a high of 1,316 in response to the Fed early yesterday but then retraced more than $30 after the Jo Cox shooting. It’s now trading around 1,290, about where it was Wednesday before the Fed.
  •  There have been no market moving data releases today. US Building Permits rose .7% in May but Housing Starts fell .3% to a 1.164M annual rate. Canadian CPI inflation data was pretty much in line with expectations. Headline inflation rose .4% in May to a 1.5% annual rate. Core inflation (ex food and energy) rose 2.1%, in line with the consensus estimate.
  •  With the rally in risk assets the US dollar is on the defensive today and is down against just about every currency. The loonie has enjoyed a nice rally from the USDCAD high of just about 1.31 early yesterday. The pair is now trading at 1.2865 and is pushing lower.
  • For a more in depth analysis of USDCAD please refer to our weekly Currency Matters which will be available later today.

Chart: USDCAD rally fades quickly