Brexit ! Again.

Discussion in 'Market Commentary' started by SimonDenham, Jun 14, 2016.

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  1. SimonDenham

    SimonDenham Simon Denham CEO Mercor Index Staff Member

    So now we know. 3000 years of progress has resulted in the greatest of all civilizational achievements…… cue roll of drums …... I give you … THE European Union !

    According to Donald Tusk everything we have or will ever have is dependent upon the UK being a member of an economic trading bloc. Perhaps he ought to look at himself and wonder why so many people both in the UK and across Europe are willing to vote against their own best interests.

    Whilst the EU ideal is something to be striven for from the point of view of the United Kingdom it has become a frustrating place which appears to delight in pointedly disagreeing with virtually every request made of it. The economic structure that has been built has proved disastrous for nearly everyone except Germany and the political situation that this has created in all the countries other than Germany has resulted in election by bribery … where each government awards ever more onerous rights to its citizens/workforce. Rights, which are noble in intention but disastrous in their economic implementation.

    The EU is now stuck in an almost perpetual period of economic stagnation which would not be so bad if it did not happen to be following such a severe recession. Every other recession in living memory has been followed by stronger than usual growth which builds us back up to a plateau before the next downturn arrives. But not this one (although it has in the US). The EU now has an armoury that is almost devoid of ammunition and is in a terrible position to withstand any kind of a slip into negative growth.

    Bureaucrats are great at creating monumental edifices to protect them from the great unwashed but not so good a creating an environment for small/medium sized businesses to thrive

    The EU is an ideal that we should all protect but the premature implementation of the single currency and thus the accompanying power of the ECB have done more structural and lasting damage than any action of the UK could possibly achieve..

    Economic Data

    Lots of Economic numbers out of the UK this morning but all of them are various measurements of inflation. CPI, RPIX, PPI, core, input, output, YoY, MoM etc.

    Whatever…. But they are all likely to point to the same thing, a marginal increase. Hardly surprising when Oil has rallied from 26 bucks up to 50 bucks in the last four months. Air fares are likely to be the headline riser and we can be sure that the Remain camp will pounce on them as an indication of what might be in store.

    This afternoon the US also releases their import and export prices and retail sales. As with the British numbers these are all forecast to be on the rise.

    Indices

    FTSE

    Oddly enough the FTSE (although weak) seems to be holding up rather better than the European markets as the Brexit vote approaches. To a certain extent this is a symptom of the make up of the FTSE itself as most of its business is not domestically based at all. A weaker pound would help the 75% of business that is external to the UK.

    But this is not the entire story either as the FTSE 250 which is more domestically focussed, and had been doing very well in recent months, had a particularly bad day yesterday as the possibility of an exit rose.

    Support is at 5980/90 then 5940/50

    Resistance is at 6110/20 then 6220/30 and 6340/50

    DAX

    As mentioned on Monday and Friday’s comment. “a day for tin hats”. Today is the same and whilst it is possible to make money in the wild swings it is also very easy to lose it. All we can really suggest is to save your investing for more normal times.

    The DAX is falling dramatically in the hot house conditions and there is probably a sense that the European Politicians are not helping at the moment. With their constant warnings about what will happen if the UK votes on Brexit and the lack of co-operation that a new UK will get from the EU administrators, German investors will be worrying about the destruction of one of their most lucrative markets. If the EU will not assist a Brexit then why should the UK make it easy for EU exporters either?

    Support is at 9510/20, 9475/85 and 9380/90

    Resistance is at 9640/50, 9800/10 then 9880/90 and 10280/90

    Dow

    As mentioned before the US is somewhat insulated from the European markets but even they are finding it hard to completely ignore the falls in the FTSE and the near 900 point drop from the highs for the Dax.

    At some point there will be a case to sell the Dow and buy the Dax/FTSE but… probably not today!

    Support is at 17710/20, 17605/15
    Resistance is at 17995/05, 18050/60, 18215/25

    FX markets

    Euro

    The Euro is looking softer this morning as the Brexit polls move ever closer to a UK bail out. A weaker Britain is not good for Europe either as it will affect the possibilities for renewed growth (which are not that high anyway).

    Everything is looking quite ‘exciting’ at the moment. Which is probably the wrong word.

    Support is at 1.1223/35 and 1.1110/20
    Resistance is 1.1370/80, 1.1460/70, 1.1590/00 then 1.1720/30


    Sterling

    Another poll another bad day for the pound. We are back down at yesterday’s lows on a serious support level. If we break the 1.4120-40 region then we are back into the ‘bad band’ for the pound.

    All we can do is watch and wait and remind readers that every single reputable organisation has said a vote to exit is bad for the UK but voters appear to be totally deaf.

    Support is at 1.4130/40, 1.4050/60 and 1.4000/10

    Resistance at 1.4250/60, 1.4320/30 and 1.4380/90


    Gold

    Equities are weak but the Dollar is strong. A combination of factors that leads to paralysis for the Yellow Metal.

    Another market that it is probably not wise to have a heavy exposure in on the 23rd June. A vote for remain would probably lose the commodity 50 bucks overnight and one for Exit the opposite.

    Support is at 1270/75, 1252/54, 1240/42 1228/30 1216/18, 1204/06

    Resistance is 1286/88 1294/96 and 1303/05

    Oil

    Oil has slipped below 50 dollars as the world watches the UK in wonder.

    And it is pertinent to repost the comment that “Whilst we are in a bull market the fall has reminded people that there is still a glut of the black stuff around and it will take some time for this situation to reverse itself.”

    Support is at 4950/60, 48.60/70, 47.40/50, 46.60/70 and 45.35/45,
    Resistance is at 50.50/60, 51.70/80 and 52.05/15
     
    Last edited: Jun 14, 2016

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