Market Drivers July 1, 2016

Comm dollars lead FX
UK PMI beats
Nikkei 0.68% Dax 0.40%
Oil $49/bbl
Gold $1337/oz.

Europe and Asia:
CNY PMI 50 vs. 50
EUR EZ PMI 52.8 vs. 52.6
GBP PMI Manufacturing 52.1 vs. 50.1

North America:
USD ISM Manufacturing

Currencies continued to consolidate around yesterday’s range highs and lows on the last trading day of the week as lack of fresh news from UK dampened volatility into the long holiday weekend.

Cable continued to oscillate around the 1.3300 figure finding buyers in the dips as UK PMI Manufacturing came in surprisingly strong at 52. 1 versus 50.1 eyed. However almost all of the data was collected before the Brexit vote and therefore was of little interest to the market which continues to view the UK economy with wariness. Several banks have already forecast that BOE will lower rates in July which is likely to take cable even lower.

On the political front, one of the principal Tory proponents of Leave campaign Michael Cove stated that Article 50 would not be invoked this calendar year, even if the new Prime Minister is elected by September. This confirms our view that most UK politicians are high reluctant to actually initiate the separation process and the fall could provide for very tense drama as EU officials will continue UK to take action one way or another.

Amidst this climate of uncertainty, global bond yields continued to drift lower with US 10 year now within striking distance of all time low at 1.40% yield. The net result of this dynamic is that the carry currencies continue to see bids as chase for yield persists. The Aussie traded towards the 7500 figure in European dealing and kiwi followed suit eyeing the 7200 level. With yield even scarcer since the Brexit shocker and with Fed now forecast to sit on the sidelines until 2017, the Aussie and kiwi remain the only game in town for yield hungry investors and if risk aversion flows stay at bay, their slow and steady rise should continue into next week.

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