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YouGov’s “on the day” poll for Sky News puts Remain at 52% and Leave at 48. UK Independence Party (UKIP) leader Nigel Farage, a major campaigner for the “Leave” campaign, has released a statement saying it “looks like Remain will edge it”. This has helped the GBP/USD rally 1.7% to within touching distance of US$1.50 and its looking like it will rally through this during the Asian session as the official votes filter out. After a relatively steady US session, the S&P 500 really hit the gas in the last hour of trade (around 5:30 am AEST) and ultimate closed up 1.34% to within 1% of its all-time high with financials and energy stocks leading the charge.
And I think the big question on everyone’s mind will be was the private exit polling that some hedgefunds paid for worth it after all? Given indications were fairly strong “Remain” would win a week ago, the marginal benefit seems pretty slim. Still a lot of hedge positions look to have waited until the result was definitive before closing out, and that’s why we are still seeing a pretty strong rally across asset classes. Arguably, this could indicate how many non-financial business has entered Brexit hedges ahead of the potentially devastating effects of a “Leave” win.
Favoured safe-haven assets, gold and the Japanese yen, have both been weakening dramatically. Gold has lost 0.8% and broken through its key support level at US$1260, and if this global risk-on sentiment continues to persist gold could continue to fall to US$1240. The Bank of Japan (BOJ) are likely to be one of the biggest non-European fans of the “Remain” win as their huge multi-year monetary stimulus plan was almost destroyed by safe-haven buying of the yen in the lead up to the vote. The yen is almost weakening neck-for-neck with the rally in the pound and it has now lost 2.1% against the USD. This should be an excellent day for Japanese equities which have been held back by yen strength the past couple of weeks and as speculation begins to increase that the BOJ may extend their easing policies in July.
It is likely to be a strong performance for Asian equities today with all markets expected to open over 1% higher. But the region will be keenly focused on Japan’s Nikkei, which we are calling to open 2.6% higher, and has been trading this week almost tick-for-tick with developed market European equities and will probably give the best gauge for how Europe will trade upon open.
The DXY US dollar index lost 0.4% overnight, but the next major risk event for global markets will be the 8 July US non-farm payrolls release. US weekly initial unemployment claims have pulled back substantially so far in June and we’re likely to see a decent rebound in the June non-farm payrolls after May’s awful number.
Whether the July non-farm payrolls number will be enough to give the Fed space for a September rate hike is the next key question for global markets now that Brexit is out of the way. But the Fed’s Labor Market Index does not provide a strong case for a September hike, and the market is increasingly looking to December as the most likely hike date.