Month: June 2016

A majority of British voters said Thursday that the United Kingdom should leave the European Union, launching markets into turmoil as investors tried to digest what the referendum means for the UK and the European bloc as a whole.

In fact, a poll from IPSOS released in May showed that there are a handful of countries with about half of their population ready for a U.K.-like referendum.

As shown in the chart below, 58 percent of Italians surveyed said they wanted to hold a referendum — although slightly less than half said they’d ultimately vote to leave the EU. For its part, France had similar results.

As a source of additional uncertainly, Brexit gave Prime Minister Shinzo Abe’s government an excuse to act, Okubu said.

“Japan could say it is helping to calm down the global markets,” Okubo said, adding that he expected the government would move if the dollar/yen currency pair fell to around 95.

“The rising yen will reduce corporate profits and directly lower prices in Japan. It’s a direct threat to the inflation that the Japanese government has been aiming for,” Okubo said.

He said that the BOJ had “nearly exhausted” other easing options, and with foreign-exchange reserves not excessive at around $1 trillion, or about 20 percent of gross domestic product (GDP), there was room to expand those reserves.

Others also expected the yen would need to strengthen further before Japan would intervene.

Marcel Thieliant, a Japan economist at Capital Economics, said he didn’t expect intervention unless the dollar-yen pair falls below 100 on a sustained basis.

But he added,”Unilateral intervention is still not likely without any kind of endorsement from any other countries,” noting that it wouldn’t be well-received by Japan’s G7 counterparts. Thieliant expected it was more likely that the BOJ would take easing measures at its meeting next month, rather than a direct intervention.

But he noted that if the G7 were to disapprove of any unilateral moves on the yen, there’s “not much they can do apart from making some noise.”

Some smaller central banks might have already moved to contain market volatility after the U.K. vote.

For one, the Swiss National Bank said it intervened to stabilize the franc and that it would remain active in the market, Reuters and Dow Jones reported.

Additionally, Reuters reported that South Korean foreign-exchange authorities were suspected of selling dollars to curb a drop in the won on Friday, although it noted that a Bank of Korea official declined to comment.

A Taiwan central bank official said the central bank would maintain stability in the local foreign-exchange market and the country’s deputy finance minister said a national stabilization fund was prepared to enter the local stock market, Reuters reported.

Asia markets were mixed in volatile morning trade on Friday, with big swings in the currency market, as results from the United Kingdom (UK) referendum on European Union membership pointed to a very tight race.

Chinese mainland markets traded mixed after opening up, with the Shanghai composite down 0.42 percent and the Shenzhen composite down 0.13 percent. In Hong Kong, the Hang Seng index was down 2.25 percent.

“Risk assets and safe havens alike were whipsawed alongside sterling swings,” said Wei Liang Chang, a foreign exchange strategist at Mizuho Bank.

In the first set of results from the UK referendum vote, the race between the ‘leave’ and ‘remain’ camps was too close to call but sentiment was shaken by results showing the city of Sunderland reporting a majority of people voting to stay in the EU.

The working-class region of Sunderland in the north-east of England reported a higher-than-expected vote to leave, causing markets to react negatively with the pound, oil and gold prices falling after the result. Sunderland is seen as a bellwether of whether the leave campaign has managed to sway a blue-collar demographic, according to the think tank Open Europe.

The currency market was volatile Friday morning Asia time. The British pound traded at a fresh session low of USD 1.4018 as of 10:26 a.m. HK/SIN, off an earlier session high of USD 1.5018.

The Japanese yen initially weakened to as much as 106.81 against the dollar in early trade, but tracking the drop in the British pound amid the first set of results from the UK referendum, the currency strengthened. As of 10:26 a.m. HK/SIN, the yen traded at 103.74 against the dollar, down from an earlier high of 103.40.

“For the most part, trading has been periodic amid dwindling liquidity,” said Stephen Innes, a senior foreign exchange trader at OANDA. “While we expect liquidity to deteriorate as we near the final outcome, market depth is playing out as anticipated. We should expect a high level of volatility, bordering on excessive at times, as results hit the wires.”

Major Japanese stocks were under pressure, with Toyota down 4.31 percent, Nissan down 2.29 percent and Honda off by 3.09 percent. A stronger yen is a negative for exporters as it reduces their overseas profits when converted into local currency.

The euro also dropped against the greenback, trading at USD 1.1153 compared to an earlier high of USD 1.1432. Elsewhere the Australian dollar and the New Zealand dollar also dropped against the dollar.

The on-shore Chinese yuan traded at 6.5959 against the dollar. Before market open, the People’s Bank of China (PBOC) guided the yuan weaker by fixing the midpoint at 6.5776, compared to Thursday’s fix at 6.5658. China’s central bank lets the yuan spot rate rise or fall a maximum of 2 percent against the dollar, relative to the official fixing rate.

“Today is a big test day not only for the confidence of Britain towards the European Union but also for the PBOC on managing the movement of the yuan,” said Iris Pang, senior economist for Greater China, at Natixis.

“The PBOC has reiterated that the yuan is liberalized towards a more market-oriented currency. It is important for the regulator to demonstrate to the market that it allows movements in the [onshore yuan] and [offshore yuan] market to reflect the volatilities created by the Brexit voting event,” she said.

As investors remained on edge with results from the UK trickling in, haven assets received a boost during Asian hours.

Spot gold climbed 1.78 percent to USD 1,277.60 an ounce as of 10:20 a.m. HK/SIN.

Government bonds also saw yields drop; the yield on the 10-year Japanese government bond fell to negative 0.158 percent as of 10:19 a.m. HK/SIN, compared to levels near negative 0.129 percent earlier. Bond prices move inversely to yields.

Sharp shares tumbled 12.78 percent in morning trade after the Japan Exchange Group, which operates the Tokyo Stock Exchange, announced the electronics maker would be reassigned from the first section to the second section on the exchange. The first section is for large-sized companies, while the second section is for medium-sized companies.

In Australia, shares of companies with exposure to the UK traded lower.

Henderson Group was down 2.96 percent; the investment management company is listed both on the Australian Securities Exchange and the London Stock Exchange. Similarly shares of Clydesdale Bank, which was spun-off from the National Australia Bank’s UK business, was also down 4.15 percent.

Major Australian banks were also under pressure, with shares of ANZ off by 3.11 percent, Commonwealth Bank of Australia down 2.79 percent, Westpac down 2.77 percent and National Australia Bank down 2.7 percent.

Oil prices were also under pressure Friday morning Asia time, with global benchmark Brent was down 3 percent at USD 49.38 a barrel as of 10:22 a.m. HK/SIN. US crude futures were down 2.89 percent at USD 48.66. Energy stocks in the region were under pressure, with Santos shares down 2.22 percent, Woodside Petroleum down 2.07 percent and Inpex off by 4.75 percent.

Stateside, the Dow Jones industrial average closed up 230.24 points, or 1.29 percent, at 18,011.07. The S&P 500 closed up 27.87 points, or 1.34 percent, at 2,113.32 and the Nasdaq composite added 76.72 points, or 1.59 percent, to 4,910.04.

The UK pound plunged as early results of the referendum on whether to stay in the European Union (EU) showed the leave camp in the lead, although later results put remain ahead and spurred a recovery in the currency.

The pound took a particular hit from early results from Sunderland, which showed the city voted 61.3 percent in favor of leave, a stronger than expected outcome.

But as fresh results put remain back on top and the pound recovered, with the pound fetching USD 1.4514 at 9:39 a.m. SIN/HK.

That roller-coaster action followed an earlier surge in the the pound to as high as USD 1.5018 from around USD 1.48 on Thursday after an initial exit poll from YouGov showed 52 percent of respondents favored staying in the EU, while 48 percent preferred leaving. The survey of 4,772 people involved the polling firm going back to voters it had spoken to previously to ask how they voted.

The pound had initially also gotten a tailwind after a key Brexit campaigner, U.K. Independence Party leader Nigel Farage, announced early on Friday that he believed the remain camp had “nicked it.”

But fresher official results at around 9:43 a.m. SIN/HK showed that with 79 out of 382 areas reporting, remain had 50.8 percent of the vote, while leave had 49.2 percent. Voting turnout was as high as 70 or 80 percent in many local areas.

“I think this is all due to ‘preset’ trades: computer generated transactions which have been based on the results of the initial votes,” said Chris Gaffney, president of Everbank World Markets, which has around USD 26.6 billion in assets.

He expected the jarring swings to continue, even though he said results still appeared to point to the remain camp carrying the day.

“Every vote report will generate another big move in the currency markets and at least some carryover to the other markets,” he said.

Before the Sunderland results came in, Jim Rickards, editor of Strategic Intelligence, told CNBC’s “Rundown” that “the market was priced for remain, but if leave wins, there’s going to be an earthquake.”

Other analysts agreed, with markets remaining on edge.

“Throughout Asian markets, while results are being received, a Brexit carries with it the potential for flash crash,” Andreas Tjahja, senior dealer at spreadbettor easyMarkets, said in a note early Friday after the Sunderland result.

That fear of a Brexit has been driving currency trade recently. Some foreign-exchange traders noted that over the past week or so, customers were “panic buying” euros and dollars to protect themselves in the event the leave camp won the referendum.

Sakthi Ariaratnam, global director of Thomas Exchange Global in London, said that volume had been exceptional over the past couple of days, with many customers buying other currencies ahead of their vacations in case a possible Brexit sent the pound lower.

Some customers had told him other exchanges had run out of euros.

Another factor that may be weighing on the pound: Some analysts had predicted that the pound’s rally in the lead-up to the referendum would evaporate in profit-taking if a remain win was confirmed; the pound was trading as low as around USD 1.40 last week.

“I call to people’s attention the age-old market wisdom that you sell on the good news and fundamentally the rally of the last couple weeks has been predicting remain would prevail,” Ken Fisher, CEO of Fisher Investments, told CNBC’s “Squawk Box.” Fisher Investments had around USD 65 billion in assets under management at the end of the first quarter.

Other currencies took a similar trajectory as the pound.

The safe-haven yen had weakened before the Sunderland result, with the dollar fetching as much as 106.81 yen, compared with levels near 104.43 yen on Thursday afternoon Asia time, before tumbling as low as 103.61 yen in the wake of the Sunderland count. At 9:41 a.m. SIN/HK, the dollar was fetching 104.84 yen.