The rally in equity markets from post-Brexit lows has continued, with the S&P currently up 0.5% and on track to close at a record high.
Europe’s Stoxx 600 index closed 1.6% higher. Equity markets were unperturbed by a mild sell-off of the bond market – investors are perhaps more encouraged by the economic outlook, following Friday’s US jobs report, and the prospect of easier-for-longer global monetary policy.
The big mover over the day has been the Yen, following the decisive victory by the ruling conservative party in Japan’s upper house elections. The Nikkei 225 index shot up by 4%, on hopes that further economic stimulus would come sooner than expected.
PM Abe later announced that he would order preparation of an economic stimulus package today. Reports of BoJ Governor Kuroda meeting with former Fed Chair Bernanke or “Helicopter Ben” also got the attention of the market.
USD/JPY shot up and has continued to plough on higher, rising by 2.3% to 102.80. Positioning data had shown a strong build-up of long Yen positions, so the speculative market has been caught on the wrong side of the trade.
Despite the ‘risk-on’ market sentiment, the major commodity currencies are all weaker versus the USD.
The NZD met some serious resistance at the 0.73 level and is down almost a cent to 0.7220 this morning.
The under-performance of the NZD is consistent with our belief that the market over-reacted to the RBNZ speech on the housing market last week. Selling pressure came despite stronger than expected electronic card transactions data. Even after the fall, the NZD remains stretched, with our (updated) fair value model suggesting 0.70 is a fairer price.
The AUD has fallen by only 0.4% to 0.7535, so NZD/AUD is back below the 0.96 mark, down more than a cent compared to the peak just under 0.97 on Friday afternoon.
GBP has seen some volatility, following further political developments overnight. Andrea Leadsom pulled out of the conservative party leadership race, leaving Theresa May as the only remaining contender. PM Cameron announced that May would be appointed as the new UK PM on Wednesday night. GBP was weak before the political developments and recovered strongly to be currently up 0.4% to 1.3000. EUR is flat at 1.1055.
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