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Caution ahead of EU Referendum Print E-mail
ONG Focus | Insights | Written by Oil N' Gold | Thu Jun 23 16 00:43 ET

Investors were cautious ahead of the EU referendum on June 23. Wall Street slipped with DJIA and S&P 500 indices losing -0.27% and -0.17% respectively. European shares remained firmed with the Stoxx600 index rising for a 4th straight day, up +0.38%, while UK's FTSE adding +0.56%. Markets in Asia Pacific were mixed. While stock indices in Hong Kong, Japan and Australia have climbed modestly higher, China's CSI 300 index has dropped -0.9%, retreating form a 2-week high, at the time of writing this article. In the commodity sector, crude oil prices were mixed. While the front-month WTI contract added +0.57%, the Brent contract slid -1.46%. In the precious metals complex, the benchmark Comex gold and silver contracts dropped -0.2% and -0.04%, respectively, on diminished safe haven demand.

The DOE/EIA reported that total crude oil and petroleum products stocks rose +5.18 mmb to 1372.8 mmb in the week ended June 17. Crude stockpile dropped -0.92 mmb to 530.63 mmb as inventory declined in 3 out of 5 PADDs. Cushing stock fell -1.28 mmb to 65.18 mmb. Utilization rate added +1.1% to 91.3%. Gasoline inventory rose +0.63 mmb to 237.63 mmb although demand rose +0.54% to 9.82M bpd. Production jumped +6% to 10.29M bpd while imports soared +17.27% to 0.88M bpd. Distillate inventory added +0.15 mmb to 152.31 mmb although demand gained +2.23% to 3.9M bpd. Production dropped -0.56% to 4.96 bpd while imports soared +18.7% to 0.15M bpd during the week.

Polls before the EU referendum continue to point to a tight race. The Opinium online survey, conducted from June 20-22, showed a narrow lead by the "leave" camp with 45% support vs. 44% for "remain". Betting site, Oddschecker, showed that the implied probability of a "leave" vote rose to 28.7% from 25.7% previously. IMF warned that Brexit, a decision for Britain to leave the EU, might trigger UK recession. Following last month's comment that Brexit could spark a stock market crash and a slump in house prices, the world lender over the weekend added that a leave vote would drag the UK in trade negotiations for years. According to IMF, "in the adverse scenario of long negotiations and a default to the trade rules of the WTO", UK would fall into recession in 2017 and GDP would plunge by 5.5% by 2019".

Meanwhile, IMF cut US GDP growth forecast to +2.2% for 2016, down from +2.4% projected in April. Growth forecast stayed unchanged at +2.5% for 2017. It suggested that "a confluence of forces…will weigh on the prospects for continued gains in economic well being". On the monetary policy outlook, the IMF saw "a clear case to proceed along a very gradual upward path for the fed funds rate".

On the dataflow, existing home sales rose to 5.53M units in May, up from a downwardly revised 5.43M a month ago. The house price index grew +0.2% m/m in April, weaker than consensus of +0.6% and +0.7% in March. Today, new home sales probably dropped to 560K in May, from 619K a month ago. Leading indicators probably gained +0.2% in May, slowing from a +0.6% increase in April. The weekly initial jobless claims data might have show a modest decline to 271K in the ended June 18, from 277K in the prior week.


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