Market Seeks to Recover Balance After Brexit

Daily Analysis - 27/06/2016

Strong Market Reaction Followed the UK Vote to Leave EU

The financial markets were spooked after the UK voted to part ways with the EU. The decision saw one of the highest voter turnouts in history, but the ‘Leave’ camp led with 51.90% of votes. GBPUSD plunged to decade lows touching $1.322 before closing the day $1.3677. Equity markets, which initially fell strongly on the news managed to recover from the day's lows. Still, the Dow Jones closed -3.39% lower for the day, with the FTSE100 and the German DAX closing lower as well.

Lower Than Expected Demand for ECB's TLTRO-II

Demand for new cheap loans from the ECB was lower than market expectations. The European Central Bank allocated 399.3 billion euros in its initial funding under the TLTRO-II scheme: banks that take up new loans from the ECB under this scheme are expected to be paid 0.40% interest by the ECB provided the banks meet the target lending cash levels on the loans. However, the participation rate on the TLTRO-II loans was low, confirming that Eurozone banks were not in dire need for more additional financing.

German Construction Orders Fall in April

The total value of new orders in the German construction industry decreased in April, data from statistics agency Destatis showed on Friday. While orders in the construction sector fell 0.80% on a month over month basis, annual construction orders were revised higher to 18.20% in April, compared to a year ago. The data comes following flash PMI numbers released a day ago which showed a slowdown in manufacturing and services sectors in the month of June.

French GDP Falls 1.30% Yearly

The final revision to the French GDP numbers during the first quarter showed that economic activity fell to 1.30%. This was lower than previous revision of 1.40%. On the expenditure side, household spending in France grew 1.10% from the fourth quarter while fixed capital formation also increased at the fast pace of 1.40%, following the previous quarter's 1.00% increase.

US Durable Goods Orders Fall More Than Expected in May

Durable goods orders in the US fell in the month of May. Headline durable goods orders fell -2.20%, more than the forecasted -0.50%. Orders for non-defense capital goods excluding aircraft fell -0.70% on the month extending the -0.40% declines from April. Non-defense capital goods shipments including aircrafts gained 1.20% in May, adding to a 1.10% hike in April.

Upcoming Events

Time
Currency
Event
Forecast
Previous

08:00 GMT
EUR
M3 Money supply y/y
4.80%
4.60%

08:00 GMT
EUR
Private loans y/y
1.60%
1.50%

12:30 GMT
USD
Goods trade balance
-59.5 billion
-57.5 billion

13:45 GMT
USD
Flash services PMI
52.0
51.3

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