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An update of where major markets ended the week following the UK vote to leave the European Union, as they affect New Zealand

An update of where major markets ended the week following the UK vote to leave the European Union, as they affect New Zealand

Markets have closed in New York and London, so now is a good time to review how they ended the week in some key metrics for New Zealand.

Data is now updated in our daily currency and interest rate charts for the Friday close.

The headline changes are as follows:

The NZD is little changed on the day, ending at 71.3 USc, 95.3 AUc and 64.2 euro cents. The TWI-5 is now at 74.7.

These levels are similar to what we had over the past week, although they are about half a cent higher than where we ended last week.

Wholesale interest rates are a lot lower however.

In fact, from terms 4 to 10 years, they are at record lows. The 10yr swap is now just 2.66%

The two year swap fell -24 bps from Thursday and is now at 2.19%. (The record low is 2.16%.)

The rate curves has flattened. the 1-5 curve is now just +13 bps, the lowest since November 2008, and the 2-10 curve is just +47 bps, a level we were at only on June 17, seven days ago.

Risk premiums, as measured by credit default swap spreads, have jumped sharply in overnight trading.

We don't know the impact on Australasian CDS spreads yet and this will be updated here when they come through. But the US risk premium index for investment grade corporate debt jumped by about +14% at the market close, and by +26% for the European equivalent. The Australasian CDS spread index jumped almost +10% on Friday from the day before.

Commodity pricing saw a marked reaction also.

Gold jumped US$55/oz to US$1,316/oz. Silver rose modestly. Platinum jumped US$18 to US$984/oz

Copper and other industrial metals fell in price.

On Wall Street, the S&P500 closed down -3.6%, a similar fall to the Dow. The NASDAQ closed more than -4% lower.

Equities in London fell -3%, while in Germany they were down -6.8%. In France the fall was -8%.

  Friday
January 1, 2016
Friday
June 17, 2016
Friday
June 24, 2016
       
NZD:USD 0.6829 0.7053 0.7126
TWI-5 73.55 73.77 74.71
       
2yr swap rate 2.85% 2.27% 2.19%
10yr swap rate 3.75% 2.76% 2.66%
2-10 swap curve +90 bps +49 bps +47 bps
       
AU-NZ CDS index 126.7 115.4 119.0
       
Gold, US$/oz $1,063 $1,262 $1,316
       
NZX50 6324 6847 6668
ASX200 5296 5163 5114
S&P500 2044 2071 2037
Shanghai composite 3539 2885 2854

Here is where the UK sits in the world economy, and some key metrics of how important it is to New Zealand.

  Data data as at
     
World GDP US$73.2 tln 2015
EU GDP as % of world 22.2% 2015
UK GDP as % of world 3.9% 2015
UK GPD as % of EU 17.6% 2015
Rank of UK GDP in World #5 2015
Rank of UK GDP in EU #2 2015
     
NZ exports to UK, NZ$ annual $1.651 bln Apr-16
     of total NZ exports 3.4%  
     Rank #5  
NZ imports from UK, NZ$ annual $1.400 bln Apr-16
     of total NZ imports 2.7%  
     Rank #10  
     
Visitors from UK, annual 213,000 May-16
     of all visitors 6.5%  
     Rank #3  
     
Permanent migrants from UK, annual 3,942 May-16
     of all migrants 5.8%  
     Rank #4  

 

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22 Comments

Donald Trumps speech and Q and A at Turnberry Golf Course in Scotland yesterday. He speaks about Brexit. It is sobering to listen to the man himself, and not having the media telling us what to think about him,.

https://www.youtube.com/watch?v=dzeF7b487uI

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So now in very dangerous territory, central banks have lost control, monetary ploy has failed, global interest rates will continue to go down, gold will go higher, commodities will dive (watch out Fonterra), more monetary stimulus to come in Europe and USA and NZ stock market likely to see its biggest one day fall since the 1987 crash. Two years of tough times ahead.
Any feedback from Key or English yet?

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Meh - the NZ stock market dropped a couple of percent - repent the end of the world is nigh ( soon time to buy :-) ). I've seen so many dire predictions in the past few weeks - based on what I don't know.

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once the dust settles we could have another 2009 buying opportunity. interest rates will go negative and most countries will print.
its time NZ jumped onboard the printing train.

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I'm curious about the difference in the drops of the respective bourses - the US and UK down about 3% yet the French and German bourses were harder hit. Is this about the UK or more about Europe......

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its more about the EU

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The top 10 consituents of the FTSE make up around 50% of the index. Over 70% of the earnings are from overseas so the profits will increase in sterling terms. The largest holdings include Glaxo,AstraZeneca, Royal Dutch Shell, BP, Unilever,Diageo,Vodafone and HSBC.
Europe indices hit more because financial sector makes up bigger percentage.

The NZ market was still open when it became clear BREXIT was a reality.

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My prediction. The knee jerk reactions of yesterday will be replaced by a far more rational realisation that regardless of this vote not a great deal will change immediately. Negotiations will take place on behalf of banks, traders, investors etc that will make the whole thing a non event in reality over the next few years.
The reason I say this is the power of vested interests will continue making things happen for THEIR benefit regardless. The people got their vote yes, but they will find it much much harder getting real change.

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With you on this one. At the moment everyone's running around like their knickers are on fire, but really it'll be a long time before we've any idea of what the real long-term results will be, or what fishhooks may be lurking. I do think that for something this drastic the threshold should have been higher for a mandate to go ahead with the exit - perhaps a 65% majority in two referenda held a couple of years apart, or similar. With a 50% threshold and a result this close, there was going to be half the country being forced into something they really didn't want, whatever the outcome was, and that's not a good thing.

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Any of the debt monsters from the Anglosphere's currencies have been belted against JPY. You would have made more saving cash in yen over the past 2 years, despite what happened y'day. Some more extreme speculators are expecting another 25% appreciation in the yen. Depending on how this is played, it;s starting to look like Auckland house prices.

Should we expect to see capital flight from Japan? Hard to say but I doubt it as it would have already occurred.

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Hmmm..

It is rote mainstream recitation that low interest rates equal stimulus while high interest rates demonstrate the opposite to some degree of “tightness.” As Friedman pointed out, this is entirely backward as demonstrated conclusively by economic history:

Initially, higher monetary growth would reduce short-term interest rates even further. As the economy revives, however, interest rates would start to rise. That is the standard pattern and explains why it is so misleading to judge monetary policy by interest rates. Low interest rates are generally a sign that money has been tight, as in Japan; high interest rates, that money has been easy. Read more

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Yes, thanks for this it. I can't work it out, but I have some theories that Japan's influence as a carry trade origin and purchasers of U.S. debt has something to do with it. I can't sketch this out mechanically, but we see the same pattern emerge when the unexpected or turmoil happens.

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I have shares in 4 companies on the NZX.
One dropped the others stayed where they began the day,and my investment in a forestry block just kept growing.
All the fuss seems to be artificially manufactured by those greedy buggers looking for a bargain..

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Bank shares got a pasting.

In the U.K., shares of Barclays PLC fell around 30% at one point Friday, although they later recovered somewhat. It and Royal Bank of Scotland Group closed the day down around 18%.

Among continental European bank stocks: Deutsche Bank AG fell around 14%, France’s BNP Paribas SA tumbled more than 17%, Spain’s Banco Santander SA dropped nearly 20% and Italy’s UniCredit plunged 23%. Read more

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we only got a taster Friday, Monday will be down adain. it will be interesting to see how long before it settles.
you would expect some to benefit, George soros would have made a killing
http://www.dailymail.co.uk/news/article-3633745/George-Soros-trading-Re…

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ASB Bank economist Nick Tuffley thinks this result will lift mortgage rates here. His opinion is on Stuff if anyone interested.

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He hopes.
We've heard this threat before.

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Yeap, they like to put fear in.

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that would be due to all the banks losing equity , next stage is like the GFC where lending slows.

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Stay in the Cash Funds.

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A complete over-reacting in the forex markets. I have heard of people buying up during the low just after the referendum result, then making a killing on the rebound.

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I see a lot of posts saying that it's all a bit of a storm in a teacup and things will soon settle down. As an ex-pat Scot, I would like to think so, but sadly, I think they are being more than a little optimistic.
Both the main parties have serious problems and there is a real risk that the UK will break up. I am really concerned that many who voted to leave will rapidly become disillusioned when all the promises that have been made to them, fail to materialise. Immigration isn't suddenly going to stop and there isn't going to be a flood of money into public services. I hope I am wrong, but there could be real social unrest.
There is a great deal wrong with the EU, but the forces that are affecting so many people's standard of living are global; technology, globalisation, loss of bargaining power and an enormous increase in income inequality. Leaving the EU will fix none of these. I think that a very difficult few years lies ahead for the UK.

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