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Sentiment Improved as "Remain" Camp Gains Support Print E-mail
ONG Focus | Insights | Written by Oil N' Gold | Tue Jun 21 16 01:30 ET

British pound extended rally against US dollar and the euro Monday, as ORB's EU referendum poll showed 53% support on "remain” and 46% support on "leave”. Polls of polls by both Financial Times and whatukthinks.org revealed a neck-and-neck race. Investors were less nervous than last week when major polls showed that the "leave” camp was leading. European shares also soared. Stoxx600 jumped +3.65%, its biggest one-day gain since February. UK's FTSE100 also rose +3.04% for the day. Wall Street was firmed with DJIA and S&P 500 indices adding +0.73% and +0.58% respectively. UK gilt yields jumped on reduced risks of BOE monetary easing while peripheral yields declined. Credit spreads tightened. In the commodity sector, energy prices jumped with the WTI crude contract adding +2.9% to 49.37 at close while the Brent contract rose above US$50/bbl and was up +3% Monday. The contracts jumped +3.83% and +4.19%, respectively, last Friday. Gold retreated for a second consecutive as risk appetite improved. The benchmark Comex contract dropped to 1280.3 before settling at 1290, down -0.19%.

The economic calendar was light. Germany's PPI deflation improved to -2.7% y/y in May, from -3.1% a month ago. Same as previous months, the contraction was mainly driven by low energy prices, which plunged -8% y/y, following a -8.8% decline in April. As the Markit manufacturing PMI suggested, the decline in input costs last month was mainly due to lower raw material prices. Manufacturers also lowered their output prices marginally. UK's Rightmove house prices gained +1% m/m in June, after a +0.4% increase in the prior month. The RBA minutes for the June meeting explained the rationale for leaving the cash rate unchanged at 1.75%. Policymakers noted that"over the year had increased to be a bit above estimates of potential growth, reflecting a stronger expansion in non-mining activity”. Yet, they cautioned that "inflation was expected to remain low for some time”. On exchange rate, the RBA suggested that "an appreciation of the exchange rate could complicate the adjustment of the economy to the lower terms of trade”.

Today, the focus is on Fed Chair Janet Yellen's testimony. On Monday, Minneapolis Fed President Neel Kashkari indicated that a Brexit would have "moderate direct effects" on the US economy, but should not pose big financial risks. He added that he expects "continued moderate economic growth [and] inflation gradually returning to our +2% target" but does think it is "productive" guess the number of Fed funds rate hike this year. In the Eurozone, ZEW's economic sentiment probably slipped -1.5 points to 15.3 in June while that for Germany probably also fell -1.5 points to 5.1 in June.


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