Sunday 25 September 2016

Stocks down, bonds rally as 'Brexit' vote looms

Published 10/06/2016 | 07:36

Brexit
Brexit

Asian shares pulled back on Friday as investors sought refuge in safe-haven assets amid festering concerns over the June 23 referendum that could see Britain exit the European Union.

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MSCI's broadest index of Asia-Pacific shares outside Japan dipped 0.6pc, but remains poised for a weekly gain of 1.7pc.

Japan's Nikkei declined 0.5pc, extending losses for the week to 0.3pc.

China's CSI 300 index slipped 0.4pc, and the Shanghai Composite retreated 0.3pc, setting them up for falls of 0.8pc and 0.4pc respectively.

Hong Kong's Hang Seng index slipped 0.3pc, heading for a loss of 1.4pc for the week.

"There are concerns over 'Brexit' as polls seem to suggest the probability of Britain leaving Europe is rising," said Tatsushi Maeno, managing director at PineBridge Investments.

"You can't buy risk assets under such conditions even if you want to," he said.

Wall Street shares also pulled back on Thursday after three days of gains, as a decline in the number of unemployment benefits claims last week showed the labour market remains strong despite May's unexpected drop in job growth.

The S&P 500 lost 0.17pc to finish at 2,115.48, but remained only about 15 points below its record closing high.

Global bond yields dropped to new lows and perceived safe-haven currencies gained as investors fled to the safety of bonds on concerns about Britain's referendum on European Union membership on June 23.

"There are a number of different factors driving yields lower and it started last week with the weak U.S. jobs data pushing rate-hike expectations back," said Patrick Jacq, European rate strategist at BNP Paribas.

"For the euro zone, this was the only constraining factor for lower yields."

German 10-year Bunds yield hit a record low of 0.023pc DE10YT=RR while the 10-year British gilt yield GB10YT=RR struck an all-time low of 1.222pc.

The start of the European Central Bank's corporate bond purchase programme also bolstered European bonds.

In Japan, the 10-year government bond yield JP10YTN=JBTC slipped to minus 0.145pc, close to the record low of minus 0.140pc seen earlier in the session.

The 10-year U.S. Treasuries yield US10YT=RR broke out of the trading range is has been in since March to hit a 3 1/2-month low of 1.659pc on Thursday. It last stood at 1.6798pc.

The retreat in risk sentiment is proving a boon for gold, which is hovering near a three-week high, and on track for a second straight weekly rise.

Spot gold XAU= pulled back 0.2pc on Friday to $1,266.86 an ounce, after climbing as high as $1,271.31 overnight. It's up 1.8pc for the week.

In the currency market, the decline in U.S. unemployment benefit claims supported the dollar index, which tracks the greenback against a basket of six peers. The index .DXY advanced 0.3pc, extending gains for the week to 0.2pc.

The Swiss franc has gained 1.6pc over the past five days, its biggest five-day gain since March 2015, hitting a eight-week high of 1.0886 franc per euro EURCHF=EBS on Thursday. It last stood at 1.08980, on track for a weekly increase of 1.8pc.

The low-yielding yen JPY=EBS, which tends to be bought back when risk appetite suffers, stood at 107.13 per dollar, clinging near five-week highs of 106.26 set on Thursday, but remains down 0.6pc for the week.

The euro EUR=EBS eased to $1.1298 from a four-week high of $1.1416 set on Thursday, but is poised for a weekly decline of 0.6pc.

The British pound GBP=D4 was on edge at $1.4456, having slipped from this week's high of $1.4664 touched on Tuesday, and heading for a drop of 0.4pc this week.

Although it has stayed 4.5pc above its seven-year low set in late February, investors are actively seeking protection against a slide in the event of Brexit.

The cost of hedging against swings in sterling's exchange rate over the next month soared, with sterling's one-month implied volatility GBP1MO= hitting its highest in more than seven years.

Oil prices also stepped back after notching another 2016 high.

Still, persistent threats by militants against Nigeria's oil industry and fear of more security incidents that could hit supply limited losses in crude.

Global benchmark Brent crude futures LCOc1 slipped 0.1pc to $51.88 per barrel, after having risen to as high as $52.86 on Thursday, and looks set to record a 4.5pc gain for the week.

U.S. crude CLc1 slid 0.2pc to $50.44 a barrel, poised to end the week 3.7pc higher.

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