June 18 2016

June 18, 2016 (Commerzbank AG) – The EU referendum vote is still very open but EU supporters are already sounding shrill warnings, signalling that the EU may deny the UK access to the single market after a Brexit decision. Nevertheless, we believe a tidy divorce is more likely than a messy one. After all, the EU also has an interest in avoiding an escalation. A long-term sustained sterling depreciation, beyond the inevitable weakness on the day after a Brexit decision, is only likely in the event of a messy divorce.

Further topics:

Spain: Back to square one!

On 26 June, Spanish voters will elect a new parliament, for the second time since December. According to polls the only noteworthy change compared to the December outcome will probably be that Podemos – together with a new ally – is likely to move ahead of the Socialists. This will hardly make it any easier to form a new government, implying that another round of lengthy negotiations is to be expected.

Outlook for the week of 20 to 24 June 2016

  • Economic data: Sentiment indicators for the euro zone have been moving sideways for over two years and little is likely to change in June. In the US, durable goods orders probably increased again on the back of aircraft orders.
  • Bond market: Intensifying Brexit jitters coupled with mounting scarcity fears are challenging investors, with 10y Bund yields reaching their preliminary destination at around 0%, but volatility may escalate during the second half of next week.
  • FX market: The upcoming Brexit referendum is dominating FX markets. Should it occur, this will spur market volatility. And JPY should be in high demand as a safe haven.
  • Equity market: The ongoing consolidation of the German equity market opens up opportunities for selective buying. We prefer companies with relatively low P/B ratios versus their historic average as well as stronger earnings momentum.
  • Commodity market: Risk aversion remains high and cyclical commodities should thus remain under pressure. Oil will probably hover below USD 50 per barrel but gold should continue profiting and climb to new highs for the year.




June 18, 2016 (Tempus Inc.) – Currency markets were volatile yesterday causing some traders whiplash. The greenback initially rallied after the consumer price index showed inflation pressures are building in the U.S.  However, the U.S. dollar experienced a violent sell-off midday on apparent technical trading.  The U.S. dollar has mostly ceded more ground overnight against its European counterparts.  Commodity-backed currencies are rather flat even as the price of oil has rebounded 2.0%.

This morning’s docket is unlikely to help the greenback recover overnight losses.  New home construction in the U.S. was unchanged in May.  Housing starts in May fell 0.3%, beating dour expectations of a 1.9% contraction.  Permits, a proxy for future construction, were also little changed from April.  There is no further data releases scheduled for today.


The Japanese yen also see-sawed overnight, but ultimately opened today’s trading session unchanged from yesterday’s close.  The yen is currently at a 22-month high against the U.S. dollar, causing concern for Japanese policy makers.  The yen fell over half a percent after Japanese Finance Minister Taro Aso called for a coordination from the G7 and G20  to address what he described as “disorderly” moves in foreign exchange markets.  Aso said he wants to take “firm action”, but there is no indication from the G-7 that they are open to intervention.
The yen quickly recovered those losses, likely escalating frustrations from policy makers.  The last time Japan to sold yen to cause currency weakness was 2011.


British pound volatility remains near its highest ever.  GBP/USD has traded in a wide 2.0% range over the past 24 hours as traders attempt to position themselves before next Thursday’s referendum.

The United Kingdom was rocked by the attack and then death of Parliament member Jo Cox yesterday.  Cox was stabbed and shot while meeting with her constituents.  Cox has been a part of the “Remain” camp, lobbying for the United Kingdom to stay in the European Union.  Per a witness, the assailant repeatedly shouted “put Britain first.”    She is the first British lawmaker to have been killed in office since the IRA assassinated Conservative MP Ian Gow in 1990.

In the aftermath, political campaigning has been suspended.  Despite the condolences from both sides, the Brexit vote still threatens the U.K. economy and the British pound.  Expect volatility to rise even more in the coming days.