As European stocks increased, the sterling grew in value against the dollar and yen on June 15th, Wednesday, as expectations the U.S. Federal Reserve will not raise interest rates in the near future put at ease the nerves of investors whether Britain will vote to exit the European Union. As a result, United States shares, which have not been immune to Brexit fears, are likely to open higher. The world’s fifth-largest economy, Britain, could decide to leave the European Union after June’s 23 referendum have taken over the markets this week and driven investors towards safe assets like gold and the Swiss franc. Many recent opinion polls have put the “Leave” campaign ahead, though the odds still favor a vote to remain. However with the Fed seen certain to keep rates on hold later in the day and many in markets seeing only an outside chance of a hike this year. Therefore, many investors on Wednesday showed a greater margin for risk, with the yen and the Swiss franc being pushed aside.
As Hantec Markets’ analyst Richard Perry stated, “It’s a minor turnaround in the negative sentiment of the last few days, but there is a bit more risk appetite across the board, with the Fed’s likely position lending a bit of support.”
Sterling shares increased for the first time in a week and was last up 0.5 % at $1.4185, having hit two-month lows of $1.4091 on Tuesday. Additionally, the pound rose 0.3 % to 150.71 yen. The dollar rose 0.1 % to 106.20 yen, having fallen 105.63 yen on Tuesday. The euro rose 0.2 % to $1.1228 and 0.2 % to 1.0815 Swiss francs. Britain’s blue-chip FTSE 100 share index rose approximately 1 %, nevertheless underperforming the pan-European FTSEurofirst 300 index, which was up 1.2 %, breaking a five-day Brexit-induced losing streak. MSCI’s broadest index of Asia-Pacific stocks outside Japan squeezed out slight gains, though Japan’s Nikkei share index added 0.4 %.
Chinese shares took in their stride the fact that MSCI again declined to admit Chinese domestic stocks to its main emerging markets index. The blue-chip CSI 300 index rose 1.3%. Analysts and traders forewarned that the break from the intense focus on Brexit might only be brief. Economists have warned that Britain departing from the EU’s single market would not only hit British assets but could even cause a European recession. Ireland, Britain’s close neighbor, and a major trading partner felt the full effect of Brexit fears as the differential between Irish and German 10-year government bond yields hit its widest in nearly a year at 0.88 %. “Ireland in the last few days has been the clear underperformer as markets penalize the country’s strong trade links with the UK,” stated ING rates strategist Martin van Vliet.
German 10-year bonds, known as one of the world’s safest assets, yielded 1.3 basis points, having turned negative on June 13th, Tuesday, for the first time – falling as low as minus 0.3 bps. Also, Japanese 10-year government bond yields hit the latest in a series of record lows at minus 0.17%, with traders blaming Brexit fears. The Bank of Japan unveils its latest policy decision on Thursday and is widely expected and hoped for to keep rates unchanged. Oil prices shot down, with international benchmark Brent crude, dropping for a fifth day in a row. It last traded at $49.08 a barrel, down 75 cents.