On 21 June, 2016 – Brexit vote continues to dominate
Stocks in Europe and the US advanced as investors waited for the outcome of Thursday’s vote.
United States
US stocks advanced after listening to Fed Chair Janet Yellen’s semi-annual testimony to Congress. However, attention quickly returned to Thursday’s vote on Brexit. The Dow Jones industrials and Nasdaq edged up 0.1 percent while the S&P added 0.2 percent.
AT&T and Verizon gained as phone companies made larger gains than any other sector of the market. Drug maker Endo International retreated again. The stock has tumbled this month, in part because of regulatory delays for a new version of Endo’s painkiller, Opana ER. Also lower were the cancer drug maker Celgene and the cystic fibrosis drug maker Vertex. American Science and Engineering, which makes X-ray inspection systems, advanced after it agreed to be acquired by the airport security and full-body scanner manufacturer OSI Systems. OSI will pay $37 per share or $263.9 million.
The transportation and logistics company Werner Enterprises was down after it forecast disappointing second quarter results. It said sluggish freight market conditions were hurting rates as were the costs associated with an increase in pay for drivers. Used car dealership CarMax disclosed disappointing first-quarter results as its costs increased and sales fell short of estimates. Auto retailer AutoNation and BorgWarner also slumped. Generic drug maker Impax Laboratories tumbled after it agreed to pay $586 million for a group of generic drugs owned by Allergan and Teva Pharmaceutical Industries. United Continental Holdings, the parent of United Airlines, traded higher after it gave investors new details on how it plans to strengthen its financial performance. United Continental said it aims to bolster revenue and cut spending by $3.1 billion over the next few years. Lennar advanced after it said it built more homes at higher prices in the second quarter. It also said new orders jumped 10 percent.
Fed Chair Janet Yellen gave the first leg of her two day Congressional testimony to the Senate Banking Committee. In her prepared remarks Chair Yellen said that a cautious monetary policy approach remains appropriate. She noted that Brexit could have significant economic repercussions. She expects the economy and labor market to improve with gradual rate increases. Once again she said that monetary policy is not on a preset course but to depend on economic developments.
Dr Yellen said that considerable uncertainty remains on the outlook — there is a risk that domestic demand might falter and productivity could continue to slow. She admitted that there is limited room to ease if the economy were to falter. She noted that the pace of labor market improvement has slowed. However, she was optimistic that the labor market will improve over the next few years.
These data reflect observations at 4:00 PM US ET. Gold at the afternoon London fixing was down US$9.20 to US$1,272.60. Copper futures were up 1.5 percent to US$2.12. WTI spot crude was down 52 US cents to US$48.85. Dated Brent spot crude was down 16 US cents to US$50.49. The US dollar was up against the yen, euro and pound. It retreated against the Swiss franc and the Australian dollar. The currency was virtually unchanged against the Canadian dollar. The Dollar Index was up 0.5 percent. The yield on US Treasury 30 year bond was up 2 basis points to 2.50 percent while the yield on the 10 year note was up 3 basis points to 1.70 percent.
Europe
Stock markets gained for a second day after Monday’s strong rally. Monday’s rally was fueled by opinion polls which showed an increase in support among the “Remain” camp regarding Thursday’s UK referendum on whether it will stay in the European Union. More recent polls painted more of a mixed picture, showing that the issue is still too close to call. The FTSE and SMI added 0.4 percent while the CAC advanced 0.6 percent and the DAX gained 0.5 percent.
European Central Bank President Mario Draghi hinted that risks emanating from a potential Brexit are challenging and the bank has taken necessary measures to overcome the impact of a possible “Brexit” on EU referendum. Draghi noted that the bloc’s uncertainty remained high and downside risks were challenging due to the continued fragile state of the global economy and geopolitical developments.
Evonik gained 1 after saying it has increased the value of its innovation pipeline by half a billion euros last year. Kion Group dropped after it agreed to acquire Dematic for $2.1 billion. Banks including Deutsche Bank, Commerzbank, Crédit Agricole, BNP Paribas and Société Générale advanced. Bouygues rose on a broker upgrade. Insurer Axa gained after releasing its 5-year strategic plan. Chemring Group sank after its first-half loss before tax from continuing operations widened from last year. Hi-tech components manufacturer Senior dropped after warning of lower revenue in the second half of this year at its Flexonics unit. Barclays, Royal Bank of Scotland, Standard Chartered and HSBC were higher.
Mining stocks Anglo American, Antofagasta, BHP Billiton, Rio Tinto and Glencore declined as they tracked the price of copper lower. BP and Royal Dutch Shell as the price of oil fell for the first time in three days.
Germany’s economic confidence strengthened sharply to a 10-month high in June. The June ZEW economic sentiment index rose to 19.2 from 6.4 in the previous month.
Asia Pacific
Stocks in the Asia Pacific region were mixed after Monday’s strong gains on optimism Britain will vote to stay in the European Union. Investors opted to wait on the sidelines prior to Fed Chair Janet Yellen’s testimony before the Senate Banking Committee later in the global market day and the all-important Brexit vote scheduled for Thursday.
The Nikkei jumped 1.3 percent thanks to a weaker yen on hopes the UK will vote to remain in the EU on Thursday. Exporters Toyota, Mazda Motor, Panasonic, Canon and Sony advanced. Mitsubishi Motors closed higher on a Nikkei report that it can continue to sell the four minicar models that it has admitted did not go through proper fuel efficiency testing. Pharmaceutical firm Daiichi Sankyo soared after announcing a share buyback. Japan Steel Works tumbled after a rating downgrade.
Both the S&P/ASX and All Ordinaries added 0.3 percent. Minutes from the Reserve Bank of Australia’s June 7 meeting offered few signals of a further cut to the policy cash rate. Banks closed mostly higher. Healthcare stocks also posted broad-based gains. Energy stocks were mixed. BHP Billiton retreated after saying it aims to slash its coal costs by US$600 million by the middle of 2017. Rio Tinto and Fortescue Metals Group also were lower.
The Shanghai Composite retreated 0.4 percent while the Hang Seng added 0.8 percent. The Kospi inched up 0.1 percent despite both foreign and institutional investors turning net sellers. The Sensex edged down 0.2 percent prior to Fed Chair Janet Yellen’s semi-annual Congressional testimony on Tuesday and Wednesday and Thursday’s Brexit vote. The onset of monsoon rainfall over Mumbai and Pune and forecasts of heavy rainfall in remaining parts of the country in the next few days helped limit the downside to a greater extent.
Global Stock Markets
Please remember, the value of investments and the income from them can do down as well as up. Funds that invest in overseas markets may be subject to currency fluctuations. Investments in small and emerging markets can be more volatile than other overseas markets. Reference in this document to specific securities should not be construed as a recommendation to buy or sell these securities, but is included for the purposes of illustration only.
Looking forward*
June EC consumer confidence flash will be posted. Canada releases April retail sales. In the US, April FHFA house price index will be posted along with May existing home sales and the weekly EIA petroleum status report. Fed Chair Janet Yellen gives her second day of Congressional testimony to the House of Representatives financial services committee.
*Note — all releases are listed in local time.
Source: Fidelity
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