An eerily quiet first week post BREXIT has resulted in the perfect scene for the validation of the saying “quiet before the storm”. Yesterday saw a heavy dose of uncertainty enter the markets which saw Gold make new multi-year highs, the GBPUSD make new multi-decade lows and a flight to safety as the USD, JPY and CHF were bought up frantically. The straw which broke the camel’s back was reports that property funds in the UK were forced to halt redemptions of the shares as liquidity constraints weighed heavily on the funds due to a large rush on redeeming the shares which now looks to be setting the stage for property holding unwinding which will likely have further reverberations in the UK economy as credit conditions worsen.
Also adding to uncertainty is todays FOMC minutes release and the BOJ Gov Kuroda`s speech. This will be the first official address by the respective central banks since the Brexit event and is likely to be scrutinised by investors as they look to see how each bank will respond to the current risk in the markets and its impact on their respective currencies and economic wellbeing. Should either mention an easing of monetary policy in the wake of Brexit, we would see their respective currencies devalue for a short while as markets rebalance the information and decide on the longer term implications of the new information. On the other hand, and a more unlikely scenario, is that either bank tightens liquidity or comes off as hawkish resulting in a further appreciation of their respective currency beyond their current safe haven status.
Whatever the outcome, markets going forward will be dramatically changed as we enter this new period of market uncertainty which will be governed by volatility and thus plenty of trading opportunities.
Today’s key data releases are as follows:
- Trade Balance expected at -2.6B
- Trade Balance expected at -40B
- SM Non-Manufacturing PMI expected at 53.3
- FOMC Meeting Minutes
- BOJ Gov Kuroda Speaks