The anti-austerity Podemos is expected to make big gains
in Sunday`s Spanish general elections. After the last week’s shocking
result of British referendum, another political event that may drive the
markets lower. The question whether this could be the start of a bear market...
well, the technical picture seems to be confirming this thesis (we have
mentioned we are bearish based on weekly DAX chart two weeks ago). There
will also be some important data however, the main topic that will resonate
coming week is the vote of Britons to abandon the EU and the reaction of the
Union. Any news from the meetings of European politicians can move
the markets significantly, therefore please be very cautious with position
sizing. This time definitely the less could be more...
Previous Week Summary
Got few questions for you:
1) Do you know
how to get the GBP down to the levels seen back in mid ’80?
2) Or how to
make yields on German 30yr bonds negative?
3) Eventually,
how to knock down CAC 8% and DAX 7% just in one day?
4) If it is not
enough, how to break two unions or make BoE pull out of the pocket GBP
250 bln?
Pretty simple, just announce the Brexit referendum
in order to secure election victory, let the false arguments and propaganda run
the show and lose the vote at the end. That’s what happened and make the UK
public pretty shocked.
Freedom of speech is guaranteed, but also the spike
in google’s searches for “impact of UK leaving EU”, “what is EU”,
“who are the members of EU”…etc., what is pretty surprising, especially as
these searches spiked up in the evening/overnight on Thursday. One would think,
that voting takes place first and only then, people check what they we were actually
voting about…
…and Scots – they are now looking at securing
the place in the EU, followed by Northern Ireland starting to talk about reunification
with Ireland.
Tuesday – German
Constitutional Court ruling was as expected with some conditions only. Yellen’s
testified but didn’t bring any surprise (as expected). She stressed the risk of
economic uncertainty, slower productivity growth, data dependency combined with
Brexit risks are on the table.
Wednesday – May New
homes sales hit the highest level in years, showing the lower inventories.
Prices also increased.
Thursday – the manufacturing PMI numbers from looked pretty decent after hitting the 6.5 yr low in May. It may be another sign of stabilization.
Thursday – the manufacturing PMI numbers from looked pretty decent after hitting the 6.5 yr low in May. It may be another sign of stabilization.
Friday – difficult
to comment any data as markets were “digesting” the Brexit results.
Announcement of Tesla to
acquire SolarCity at 20-30% premium caught attention of many in
equity space. It looks very visionary to create a one-stop place for electric
cars, solar panels and batteries, especially when by combining their customer
bases they can leverage sales and marketing expenses. On the flip side, Tesla
shareholders may not be open to support such a deal that is combining of two
companies still producing the negative cash flow.
(the SolarCity shares are down approximately 60% since last year).
Upcoming Week Outlook
MONDAY: no
important data, but watch out for the EU reaction to the Brexit vote. EU
officials were meeting during the weekend and will continue during the week.
They are expected to push Britain to exit the EU sooner rather than later. The As
Sunday’s Spanish elections seem to add more uncertainty into the EU’s future,
it could be a really rough start to the trading week after the pound’s black
Friday.
TUESDAY: final US
Q1 GDP is expected to increase vs. previous prelim. release (0.8%). It will be
lower than Q4 (+1.4%) but should maintain the rising trend of the Q1 GDP growth
of the last 2 years (-0.9%, 0.6%). The Consumer sentiment should have minor
effect on the markets as won`t reflect the Brexit vote effect.
WEDNESDAY: the Fed’s
unofficial inflation indicator will be released, the Core PCE index. The
probability of a July hike was brought down to zero by the Brexit vote,
therefore currently we expect minor effect. A surprise could however lead to a
volatile short term move. Wednesday is as always a Crude oil day and given the
current risk off mood and the test of the uptrend line in both WTI and Brent on
Friday, traders will look for any confirmation the bull is not dead yet…
THURSDAY: the Trade
balance data of the UK is due on Thursday and the deepening trend of the
deficit seems to be very strong, which is the biggest macro concern currently.
The recent drastic depreciation of the pound may help in the medium term as
trade conditions with EU will stay the same at least for the next 2 years.
However further decline in TB could have further negative impact on the GBP.
FRIDAY: we will
end the week with PMIs from all over the world. Most importantly in China where
the Official and the HSBC manufacturing PMI will be released within 45 min. A
surprise in the UK and US PMIs later the day could be also a market mover. All
of these data were oscillating around the 50 point mark which represents the
threshold of recession for an economy.
Weekly Technical Overview
EURUSD weekly chart:
GOLD ( XAUUSD ) weekly chart:
Event Risk Calendar
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