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Market Talk — June 23, 2016

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A somewhat mixed and quiet session for Asia, which was really to be expected. JPY traded between 104 and 106 for the majority of Asian and European time zones, edging towards the 106 level as Europe closed. The Nikkei benefitted most of the day on the back of the last poll seen ahead of the media ban (under UK law no reporting is permitted until polls close (10PM). Shanghai and HSI both opened lower but it was only temporary for the HSI as the day produced a 0.35% return. However, Shanghai could not pull itself out of the negativity closing 0.5% lower on the day. As Europe closed, all Asian indices had followed global markets and were around 1% better.

Europe started on a positive note and due to UK media restrictions were reasonably well behaved throughout the day. All indices were better; up by around 1.5% as confidence continued to price a “remain” verdict ahead of any form of confirmation. We do not expect to hear any concrete results until after midnight BST. Most data, on either side of the pond, was ignored and let markets revel in their complacency. When markets did run a little too far, things were topped and so we closed the European session on tender-hooks.

The US market has closed too early for the judgement on today’s events and so it is either a sleepless night, for those manning the desks, or we wake tomorrow morning and restructure the consequences. A positive day with all core indices closing around 1% better but in hesitant trading. With the exception of Utilities a fairly broad balanced rally that closed the day at the highs. The DOW, S&P, and NASDAQ all closed around 1.3% higher on the day.

Even as we await the outcome of the vote the markets have spent the day assuming the UK votes to remain within the EU. The Treasury market traded heavy most of the day with the curve steepening all the way. 2/10 closed +96bp closing 10’s at 1.74% (the highest yield seen in nearly two months). As European equity markets rallied we did see Bunds trade off by not to the extent of the US market. US/German 10yr spread closed this evening at +165bp. Italy closed 1.39% (-3bp), Greece 7.54% (-20bp after ECB makes Greek debt eligible collateral), Turkey 9.22% (-16bp), Portugal 3.06% (-5bp) and UK 10yr Gilts at 1.37% (+6bp).

So much hype and anticipation has been priced into tonight’s closing prices, so overnight activity could be very interesting indeed. Put the cocoa on and camp down for a long night in front of the telly/screens.