Monday June 20 Daily Market Primer

The Brexit vote is Thursday.  European and Asian tocks jumped on Monday as the weekend Brexit polls swung in favor of “Remain”.  The FTSE 100 and CAC 40 are up  4.5%, and the Stoxx Europe 600 is up 3.6%.  The pound is surging and US and most European bond yields are rising in a “risk on” trade.  US stocks fell Friday as investors became increasing focused on Brexit.  Crude oil rebounded on Friday, up about 4%, moving in the opposite direction of stocks for a change.  Oil moved up another 2% today, with Brent crude back over $50 and WTI not far behind. 

If you would like to read the arguments for and against Brexit for your yourself, here are op-eds from the Financial Times http://bit.ly/FTstay and the New York Times http://bit.ly/NYTleave.  The US market jumped at the open, up 1.4% on the S&P.

	LAST	CHANGE	% CHG
DJIA	17675.16	-57.94	-0.33%
Nasdaq	4800.34	-44.58	-0.92%
S&P 500	2071.22	-6.77	-0.33%
Russell 2000	1144.7	-3.49	-0.30%
Global Dow	2336.01	38.14	1.66%
Japan: Nikkei 225	15965.3	531.16	3.44%
Stoxx Europe 600	337.7	11.92	3.66%
UK: FTSE 100	6223.17	272.69	4.58%
CBOE Volatility	17.16	-2.21	-11.41%
Australia: S&P/ASX 200	5256.8	110.8	2.15%
China: Shanghai Composite	2888.81	3.7	0.13%
Hong Kong: Hang Seng	20510.2	471.78	2.35%
India: S&P BSE Sensex	26866.92	341.46	1.29%
Japan: Nikkei 225	15965.3	531.16	3.44%
Singapore: Straits Times	2800.87	49.31	1.79%
France: CAC 40	4342.67	189.66	4.57%
Germany: DAX	9974.93	424.46	4.44%
Italy: FTSE MIB	17385.49	462.2	2.73%
Spain: IBEX 35	8626	426.1	5.20%
U.S. 3 Month	0.272	0/32
U.S. 2 Year	0.725	-1/32
U.S. 5 Year	1.158	-6/32
U.S. 10 Year	1.666	-15/32
U.S. 30 Year	2.474	-10/32
Crude Oil	49.05	1.07	2.23%
Brent Crude	50.84	1.09	2.19%
Natural Gas	2.716	0.03	1.12%
E-mini S&P 500	2084.25	25.25	1.23%

India’s well respected central bank governor Raghuram Rajan will step down early, citing lack of government support.  The Indian market took the news in stride.  Nigeria unpegged their currency from the US dollar and the value immediately dropped by about 27%.  The situation is getting very bad in Venezuela as the country is in the midst of economic collapse and food shortages http://bit.ly/VenHunger http://bit.ly/VenShortage.

Here’s the news:

Markets surge

The week is starting with a huge rally in equity markets globally. In Asia the MSCI Asia Pacific Index climbed 1.8 percent after a poll showed a swing towards 'remain' in the U.K. referendum on European Union membership. Japan's Topix index closed 2.3 percent higher as the yen weakened. In Europe, the Stoxx 600 index was 2.9 percent higher at 5:31 a.m. ET with all industry groups gaining. S&P 500 futures were up 1.3 percent. 

Big moves in bonds, fx

The headline winner in currency markets is the British pound which was trading at $1.4626 at 5:55 a.m. ET, climbing the most since 2008, as Brexit fears wane. The biggest move on the day has to go to the Nigerian naira, which dropped 22 percent in the first day of free-float trading following a decision by the country's central bank. In the bond market, European sovereign debt is reversing the trend of last week as Spanish, Italian and Irish bonds rally while German sovereigns weaken. Morgan Stanley said that investors should back longer-term bonds ahead of the referendum as rates would fall much more on a 'leave' vote than they would rise on a 'remain.'

Brent back over $50

Crude, which just had a week to forget, is gaining this morning, with West Texas Intermediate for July delivery at $48.67 a barrel at 5:55 a.m. ET and Brent for August settlement rising above $50 this morning, having traded at $47 as recently as last Thursday. In other commodity news, gold is sinking the most in a month as markets switch to risk-on mode.

Rajan not staying at India's central bank

In an unexpected move, India’s central bank Governor Raghuram Rajan has said that he will step down when his term ends in early September. He made it clear that he was willing to continue in the position, but he seems to have decided to leave due to a lack of government support. There are five candidates in line to replace Rajan at the central bank, according to a government official who asked not to be identified. Indian stocks, which fell at the open, closed 0.7 percent higher as the global rally and efforts by the Modi administration to calm investor nerves outweighed risks from the surprise announcement.

European politics, Trump strategy

There was a blow to Italy's Minister Matteo Renzi over the weekend as candidates from the anti-establishment Five Star Movement won mayoral elections in Rome and Turin. In Spain — which is facing a second general election in six months on Sunday next — polling shows no clear leader, pointing to a repeat of the attempts to form a government that failed after December's vote. In the U.S., Republican Donald Trump is gathering his top advisors to reassess strategy after a rough few weeks in polls which saw him trailing Hillary Clinton by 12 percentage points.

Japanese exports tumbled in May. The latest trade data released by Japan's Ministry of Finance showed that the value of exports fell 11.3% year-over-year in May as the stronger yen made goods less attractive. Exports to Japan's largest customer, China, plunged 14.9% YoY, while shipments to the US sank 10.7% YoY. On the other side of the ledger, imports fell 13.8%, causing Japan's trade balance to swing back to a deficit of 40.7 billion yen, compared with a surplus of 823.5 billion yen in April.
Traders are piling into the yen. Net long yen positions surged by $2.2 billion to $5.3 billion, according to Commodity Futures Trading Commission data, cited by ANZ. "One currency benefiting from Brexit uncertainty is the yen," wrote Khoon Goh, senior FX strategist at ANZ. "The yen's safe haven status has been apparent in recent weeks."
Nigeria's currency is crashing. Nigeria's central bank removed the dollar peg of its currency, the naira, as the country looks for ways to combat falling oil prices. Monday's action has caused the naira to crash 27% to 257 per dollar. "A functioning flexible exchange rate will reduce dollar liquidity shortages and associated risks of banks failing to meet their dollar liabilities when due or requiring the Central Bank of Nigeria to impose capital controls," the rating agency Moody's said. "It also will allow banks to expand their trade business, supporting their fee income and profitability."
Investors should worry about 3 dates this year. Core Spreads chief market strategist and technical analyst Sandy Jadeja has correctly warned about several market crashes, and he told Business Insider that investors should mark down August 26-30, September 26, and October 20 as three dates that spell trouble for the Dow Jones index. "We are currently in a very dangerous time zone between 2011 until 2018. This is an 84-year cycle [called the 'Time Cycle'] and the previous cycle appeared during 1928 until 1934 where the Great Depression took place," he said.
The Cigna-Anthem merger might hit a snag. US antitrust regulators are unsure whether "the companies can offer enough concessions to maintain competition in the industry," Reuters says, citing The Wall Street Journal. And Wall Street doesn't seem to be convinced that a deal will happen either. Cigna shares ended Friday's session at $129.50, about 33% below the deal price of $183.36 a share.
'Finding Dory' broke a box-office record. Disney's animated film had the biggest domestic opening weekend ever for an animated film. "Finding Dory" raked in $136.2 million across 4,305 US theaters, Reuters reports. The film brought in another $50 million overseas, including $17.5 million in China.
Hold Your Fire
Republicans and Democrats are headed for a new showdown over gun control this week as lawmakers sort through four proposals on the divisive issue in the wake of the Orlando nightclub massacre. The Senate will vote Monday on provisions to limit access to weapons for people on the government’s terrorist watch lists and expand background checks. One Republican-sponsored measure to delay gun sales to buyers on a watch list has secured support from the NRA. None of the proposals is likely to reach the 60-vote threshold needed to overcome Senate hurdles, but some momentum was already building for a bipartisan compromise led by Sen. Susan Collins. Meanwhile, Attorney General Loretta Lynch said the FBI plans today to release a partial transcript of the 911 calls from the gunman inside the nightclub. But the transcript will not include some of Omar Mateen’s references to his Islamist motivations.
Divided They Vote
While the rest of the country’s financial industry has lined up quietly in favor of remaining in the EU, U.K. hedge funds are loudly divided on the looming “Brexit” referendum. Those who want to stay say London has benefited from the EU’s free market for services such as fund management and insurance. Those who want to bolt say heavy-handed regulation from Brussels has held London back and could damage it further. Bankers are reluctant to promote their views on the referendum because the financial crisis left the industry deeply unpopular with the public, but hedge funds, while also unpopular, usually cater to institutional investors and have wealthy owners who are politically active. Meanwhile, across the U.K., voters are divided on Thursday’s referendum roughly along class and generational lines, surveys show. But weekend polling suggested a shift back to the Remain camp, and that boosted the pound and global stocks this morning.
Stock markets around the world up. Japan's Nikkei (+2.3%) led in Asia, and Germany's DAX (+3.4%) paces the advance in Europe. S&P 500 futures are higher by 27.50 points at 2,086.25.

US economic data is absent. Fed Chair Janet Yellen's semiannual Humphrey-Hawkins testimony kicks off Tuesday. Data for the week is extremely light and doesn't begin to flow until Wednesday. This week's highlights include existing-home sales, new-home sales, durable orders, and University of Michigan consumer sentiment. The US 10-year yield is higher by 6 basis points at 1.67%.

Beyond the turmoil, central bankers dread Brexit's shadow.

Trader wars: The humans strike back.

When Trump meets Clinton, no TV record in America will be safe.

Negative rates are the tools of our elderly oppressors.

Venezuelans ransack stores as hunger grips nation.

This week will be all about Thursday's Brexit referendum, but for the moment let's turn our attention elsewhere in European politics. The two mayoral elections that took place in Italy over the weekend show how the fortunes of Europe's mainstream political parties continue to dwindle. Members of the anti-establishment Five Star Movement won races in both Turin and Rome, defeating candidates from the center-left Democratic Party, the party of Prime Minister Matteo Renzi. For those who have forgotten, the Five Star Movement is the party formed by erstwhile comedian Beppe Grillo. Grillo ran for Prime Minister in the 2013 general election in a vote that was, in retrospect, a harbinger of things to come. Despite coming third his party won a stunning 25.5 percent of the vote, not far behind the 29.5 percent of the vote won by the winners, the Democratic Party (led at the time by Pier Luigi Bersani, who eventually stepped aside for Renzi). Meanwhile, the party of Mario Monti -- the technocrat incumbent -- took a mere 10 percent of the vote. Back in early 2013, we were still close to the most intense days of the euro zone sovereign debt crisis, so the establishment had reason to hope that politics would return to normal as the issue faded. Now we're seeing that was no fluke.

Source: Bloomberg, BI, WSJ, CFAI Fin. Newsbrief, FT, NYT