Markets are very spooked and likely to remain this way.

Discussion in 'Market Commentary' started by SimonDenham, Jun 15, 2016.

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  1. SimonDenham

    SimonDenham Simon Denham CEO Mercor Index Staff Member

    Markets continue to look weak (although there is a minor bounce this morning in Europe) as investors try to look at the landscape in a post Brexit world.

    Sadly the view (as presented by virtually everyone with an informed opinion) is grim. Interested parties have been at pains to suggest that should the UK leave then they would have no choice but to throw all their toys out of the pram and then scwream and scwream until they are sick.

    In reality, of course, if the UK is so idiotic as to vote exit everyone will get together and sort out some kind of trading deal compromise, some sort of travel and work compromise and some sort of diplomatic compromise. The exit camp will have been satisfied and the Remain camp will still actually be in charge.

    There is some talk of the UK’s exit being some kind of catalyst which would cause a break up of the EU but this, again, is just not realistic. If Greece under the extreme pressure of the recent years could not bring themselves to give up the Euro and the support that being a member brings do we really think that any other nation would get even close to leaving? The simple fact is that the UK is a special case and as is the norm in such instances will require ‘accommodation’.

    Commentators and Fund Managers still seem comfortable that the vote will go for remain and this may be the outcome but one wonders whether this is a consequence of the fact that nearly all Newspaper, TV and Financial sector workers are based in London where the general population (that they will meet and associate with) is better educated and more pro the EU ideal. Where I live this could not be further from the truth. The vast majority of people that I speak to are vehemently pro an Exit vote.

    Like some small time bully Osbourne is still pushing the ‘fear’ button with his latest comments concerning an emergency austerity budget if we vote to exit. Yet again the remain camp seem to not have noticed that the peddling of dire warnings is just not working. People’s hopes and fears have been so dulled over the last ten years that economic warnings just have minimal impact. What the average Brit sees is a tide of immigration and a housing crisis that is causing extreme concern to parents and extracting a heavy price from renters and First Time buyers. With the EU still showing zero signs of ‘above trend’ growth the feeling is that the UK is likely to continue to be the sponge that absorbs the excess.

    Economic Data

    Yesterday’s data showed UK inflation weaker than expected (and weaker than I thought as well). Clothing prices seem to have offset the increase in fuel and the poor weather so far in June will not be helping retail sales either.

    Over in the US there was the opposite as Export and Import prices were way above forecasts and Retail Sales also marginally better than thought. Ms Yellen may yet have the ammo for a hike today!!

    For those who might have forgotten it is FOMC day. We are not expecting a hike (although three weeks ago we were) but betting your life on what a central bank does would be a pretty short route to extinction.

    French May inflation has already come out and this has come in where we might have expected the UK to be with the number showing plus 0.5% for the month (0.1% YoY).

    UK average earnings increase is expected to slip to plus 1.7% (still way above inflation) down from 2% and the claimant count is likely to be flat.

    This afternoon we have another huge batch of US inflation data which might cause some flurries but with the FOMC out at 7 this evening the likelihood is that things will be quiet until then.



    The FTSE ended the day 2% down as investors sought insurance against any Brexit vote. Various pundits have talked of a 20% drop in equity markets on an out vote and this will have made a serious dent in confidence. The bigger players are hedging across the board and this will be causing a domino effect through UK asset values. We are now 5% below the highs last week and even with the bounce this morning it is tough to imagine any concerted buying at this point.

    Support is at 5940/50 then 5900/10 and 5815/25

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


    All I can do is repeat yesterday’s comment.

    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?

    Our support at 5910/20 held three times yesterday so there is at least one point that seems to be solid for the time being.

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

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


    The Dow is finally seeming to take more note of events around the world and suffered a second poor session yesterday falling as low as 17600 (mind you we were here, and 300 points lower, just a few weeks ago)

    Support is at 17670/80, 17600/10 then 17520/30
    Resistance is at 17815/25, 17995/05, 18050/60, 18215/25

    FX markets


    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).

    We broke through 1.1225/35 yesterday and this is now looking to be resistance.

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

    Support is at 1.1180/90 and 1.1110/20 then 1.1050/60
    Resistance is 1.1225/35, 1.1370/80, 1.1460/70, 1.1590/00 then 1.1720/30


    Sterling seems uncomfortable down at these levels and we are seeing some solid buying as Cable looks to try a move to the upside this morning. The latest opinion poll giving Brexit a 7% lead has had no impact and perhaps we have become more immune to pollsters input.

    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


    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


    A repeat from yesterday as well

    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 4920/30, 48.70/80, 47.40/50, 46.60/70 and 45.35/45,
    Resistance is at 50.50/60, 51.70/80 and 52.05/15

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