Oh well, out of the EU and the Euros... what could go wrong now?

Discussion in 'Market Commentary' started by SimonDenham, Jun 28, 2016.

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  1. SimonDenham

    SimonDenham Simon Denham CEO Mercor Index Staff Member

    Markets look to be stabalising today after the falls of yesterday. I am not quite sure what has really changed but buyers seem to be willing to dip a toe in the water in the hope of picking up a bargain or two.

    Stocks in Banking, Airlines and Building have been shot to pieces and even I was looking at values yesterday afternoon in lines such as Barclays and Taylor Wimpey (which had dropped 40%) as the falls appeared overdone. At least until we know a bit more. There is always a chance that the referendum might just be ignored by Parliament (which they are perfectly able to do) especially if the Tories manipulate the election of a new leader such that Boris is sidelined.

    I doubt that this will happen but all possibilities should be included in your investment strategies.

    Whilst the equity markets are having a reasonable day sterling markets are still pretty much flirting around the lows and it may be a very long time before we ever see 1.40 again against the dollar. Mind you markets have a habit of massively overshooting on any big moves to the counter traders will also be looking around for some value. A series of major banks came out with expectations for sterling to be pretty much where we are now at the end of the year so many analysts are also obviously feeling that this is just about the fair value area.

    We are also now in the knee jerk reaction phase when people start going on about not pushing investment towards the UK because of the vote or actually pulling investment out. We had the same conversations over the Pound and the ERM. In reality huge investment projects do not get turned aside so easily, indeed investing in the UK is now quite a bit cheaper than it was last week and whilst being in the single market is important it is not everything. The UK will still be able to export to the EU zone as does the remaining 85% of the planet but it will be a little bit harder and a little bit more expensive.

    Economic Data

    The US PMI yesterday came in on the higher side and numbers over the next few weeks will also be marginally better or marginally worse but the markets are not paying much attention as they all come under the heading of ‘old news’.

    Only when data is taken that is clear of the pre 23rd June influence will we get a better picture of what we face. From what I read across the political spectrum one of the things likely to hurt the UK is the extreme pessimism that is swirling around. There appear to be no ‘good’ stories just tales of EU funds being cancelled immediate job cuts and house purchases being bailed on.

    On the housing front buyers will be very wary of continuing with contracts as there is almost certain to be a pull back of some kind. But on the other hand long term rates are now at their all time historical lows so mortgage costs should be weaker for the next few years.

    Indices

    FTSE

    We are currently ‘up’ 130 points at 6110 which in terms of index value is probably not that far from where we would have been if the vote had gone the other way. Of course within this are some very variant numbers with Bank/building/airline stock down 20 -30 percent but mining and oil actually higher in some cases. Generally depending on their exposure to a weak sterling or a weak economy.

    Support is at 6045/55 then 5995/05 and 5965/75

    Resistance is at 6145/55 then 6235/45 and 6320/30

    DAX

    The DAX is winging around even more violently than the FTSE but all seemingly to no great purpose. What harms the UK will also harm the Germans, especially if the EU gets all moralistic about this and tries to be puritanical. German exports into the UK are huge (as anyone who drives knows). If EU leaders are seen to be unaccommodating then there may be repercussions.

    As has been pointed out many times the EU visible goods trade surplus into the UK is vast. Politicians on all sides would be well advised not to cut off their noses to spite their face.

    Support is at 9445/55 then 9420/30 and 9315/20

    Resistance is 9480/90 then 9585/95 and 9655/65

    Dow

    The US markets had a bit of catch up yesterday falling sharply towards the close just as the Europeans seemed to have run out of steam. This morning they have bounced higher in line with other markets but again the move seems muted with just 0.8% to the good compared to over 2% in the Eurozone and the UK.

    The overall fall though is minor (just 3% as we stand) and we must remember that the US markets have not really suffered as have the rest of the world over the last year. Values are still full.

    Support is at 17100/15, 17065/70 and 16935/45

    Resistances can be seen at 17280/90, 17405/15 and 17530/40

    FX Markets

    Euro

    The euro is climbing a little this morning but as with nearly all the other markets it is tough to do anything other than take very short term speculative positions.

    Support is at 1.1005/15 then 1.0970/80 and 1.0890/00

    Resistance is at 1.1085/95 then 1.1165/75 and 1.1245/50

    Sterling

    Do not touch unless you have deep pockets !

    The pound will continue to wing around driven by vengeful and exasperated political comments.

    Support is at 1.3280/90 then 1.3205/10 and 1.3115/25

    Resistance is at 1.3375/85 and 1.3450/60 then 1.3530/40

    Gold

    As we mentioned on Friday when the metal was up at 1350 it might prove dangerous to remain long as the bad news was now in the market and so buying for protection in a chaotic world was probably shut the door after the horse had bolted.

    We are now down at 1314 and looking weak. We are right on support (the previous move’s high)

    Support at 1312/14 then 1298/00 and 1286/88

    Resistance is at 1318/20, 1328/30 then 1335/37 and

    Oil

    I suppose oil was a bit tired already from the previous six months so it is not surprising that the price now is pretty much the same as in the weeks before the bombshell

    Buyers are still around but so is the production surplus. Probably means we are going nowhere fast.

    Support is at 47.40/50, 46.60/70 and 45.35/45,
    Resistance is at 49.10/20, 50.00/10, 51.70/80 and 52.05/15
     

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