Monday 24 October 2016

Sterling and stocks up while safe havens retreat as Brexit fears ease

Published 20/06/2016 | 07:30

A pedestrian holding an umbrella walks past a stock quotation board outside a brokerage in Tokyo, Japan. REUTERS/Issei Kato
A pedestrian holding an umbrella walks past a stock quotation board outside a brokerage in Tokyo, Japan. REUTERS/Issei Kato

Sterling rallied on Monday as opinion polls swung in favor of British voters opting to remain in the European Union at this week's referendum, underpinning risk sentiment and sending the perceived safe-haven yen tumbling.

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The pound climbed 1.6pc to $1.4589, extending a recovery from last Thursday's more than two-month trough of $1.4013.

It jumped more than 2pc to 152.65 yen, pulling well away from a three-year trough around 145.34 set on Thursday.

Investors took heart after three of six opinion polls published over the weekend showed a shift towards keeping Britain in the EU, but the June 23 vote still looked too close to call.

"The poll findings will resonate today, likely seeing further advances for sterling, some renewed weakening in the yen and a firmer Australian dollar," said Ray Attrill, global co-head of FX strategy at National Australia Bank.

Even before the latest polls, data from the Commodity Futures Trading Commission released on Friday showed that currency speculators reduced their net short positions against sterling in the latest week, from a three-year high in the previous week. The pound still declined by around 3pc against the dollar during the June 7-14 timeframe.

Indicating a general pick-up in risk appetite, U.S. stock futures rose more than 1pc, suggesting a positive open on Wall Street later in the day.

Asian stocks gained across the board on Monday, aiding a recovery in both sterling and investor risk appetite.

Safe-haven assets and currencies like gold, government bonds and the yen retreated.

Spreadbetters expected equities to remain on the upswing, forecasting a significantly higher open for Britain's FTSE, Germany's DAX and France's CAC.

MSCI's broadest index of Asia-Pacific shares outside Japan rose 1.3pc.

Australian stocks added 1.4pc and South Korea's Kospi rose 1.5pc.

Japan's Nikkei climbed 2.4pc, helped by a retreat in the recently bullish yen.

"Those who were risk averse are reversing their positions," said Yoshinori Shigemi, global market strategist at JPMorgan Asset Management in Tokyo.

"Sentiment was extremely negative last week, but it's recovering now, though we should not be overly optimistic."

Three British opinion polls ahead of the EU membership referendum on June 23 showed the "Remain" camp recovering some momentum, although the overall picture remained one of an evenly split electorate.

Global markets, buffeted this month by Brexit woes, had a breather at end of last week from a three-day suspension in British campaigning following the fatal attack on lawmaker Jo Cox, a strong supporter of Britain staying in the EU.

"It is hard to think the market's calmer tone to end last week is going to be an ongoing theme this week, particularly as Brexit campaigning and the release of opinion polls has resumed again," wrote strategists at ANZ.

"To be fair, the sad murder of UK politician Jo Cox may see the rhetoric from both camps get toned down somewhat. But markets will still, no doubt, swing about with movements in opinion polls, just as they did last week."

The euro rose 0.8pc to $1.1371.

The safe-haven yen, which had soared to a 22-month high of 103.555 per dollar last week on Brexit woes, pulled back. The dollar was up 0.5pc at 104.640 yen.

The Australian dollar, seen as a rough measure of risk sentiment, was up 0.7pc at $0.7450 to put further distance between a two-week trough of $0.7286 touched late last week.

The dollar index touched an 11-day low of 93.449 as the greenback gave back ground against most of its major peers, apart from the yen.

Dovish comments from St. Louis Fed President James Bullard on Friday also weighed on the U.S. currency.

In commodities, crude oil prices extended gains as easing Brexit worries and a weaker dollar helped the commodity after six straight days of declines.

US crude gained 1pc to $48.44 a barrel and Brent crude was up 0.8pc at $49.56 per barrel.

Gold fell as the latest ebb in risk aversion dented investor demand for safe-haven assets. Spot gold was down 1.3pc at $1,281.00 an ounce, climbing down from a near two-year high of $1,315.55 scaled last week.

The US Treasury 10-year note yield rose to as high as 1.6610pc, pulling back sharply from a four-year low of 1.5180 plumbed on Thursday. The 10-year Japanese government bond yield also hovered significantly above a record low touched last week.


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