Optimism reigns. The better-than-expected GDP print in the US triggered a relief rally in US equities in New York. Asia took over a cheerful market. Nikkei and Shanghai’s Composite gained 1.59% and 1.30% respectively and handed the market into the hands of the bulls at the European opening.
FTSE rang the opening bell on a positive note as all sectors started the session in the green. Banks gain in London. HSBC (+1.94%), RBS (+2.93%) Barclays (+3.89%) and Lloyds (+3.89%) extend gains although Moody's revised down its outlook on the UK's banking system to 'negative' from 'stable'. The rating agency also lowered its outlook on several UK insurers and banks, pointing at risks surrounding the UK’s decision to leave the European Union. Given the slippery ground, gains could be fragile.
BP (+1.72%) and Royal Dutch Shell (+1.59%) are upbeat as oil prices are picking up momentum towards $50. IAG (-3.20%) and TUI (-4.00%) are sold-off following the triple kamikaze attacks in Istanbul International Airport. Frequent terrorist attacks and rising fears increase the possibility of a chronic depression in travel and leisure activity. We could see a fundamental downside shift in sector profitability.
Gold consolidates above the $1300 level. A globally better risk appetite could pull the prices down to the $1300 support in the short-run. Nevertheless, the mid-term view has clearly been revised on the upside. Political and financial implications of the Brexit, potential contagion effects, a softer Fed could encourage a mid-term rise towards 1400$/oz.
Brexit uncertainties continue to hold some investors back from taking positions as Brussels has reacted very sharply against the UK’s decision to walk away from the European Union, making the situation crystal clear for everybody: there is no sympathy for the UK’s decision to walk out the door. As it appears today, Brexit could be the beginning of a long and bumpy journey at the heart of the European Union. Bilateral negotiations will certainly be tense and puzzling.
The sterling is softer against all of the G10 currencies since June 24th. The US and Canadian dollar trade 2% higher against the pound, the yen gained 1.87%, while the euro and Swiss franc are 1.66% and 1.20% stronger compared to their pre-Brexit levels as the knee-jerk reaction leaves its place to a thoughtful trading environment.
Cable trades sideways. Downside risks prevail as the post-Brexit vows continue hitting headlines. Upside attempts are expected to remain capped. From a technical perspective, short-term bias is considered negative below the major 38.2% retracement on post-Brexit sell-off, 1.3838.