Brexit fears eased and markets rose in Asia (but not Australia), Europe and the US as the British Prime Minister, David Cameron went to Brussels for a summit that will see him excluded from the talks tonight.
He argued for the EU and Britain to remain close links despite last week’s Brexit vote. But the reaction he and other UK politicians received overnight left us in no doubt the EU will not be offeringBritain any help in leaving.
Australia’s weak performance yesterday will be reversed today with an 80 point surge expected at the start of the day’s trading, according to the ASX futures market.
While there is still no timeline for Britain to leave the EU, German Chancellor, Angela Merkel made it clear there would be no talks or deals to help smooth the country’s departure – it was told to take the decision to depart and then talk.
Ms Merkel said Britain can’t ‘cherry pick’ its way to departure and would have to accept all the EU’s internal rules (especially on migration, which the Brexiters oppose) if it wanted a relationship after leaving in the same way that Norway does.
The pound rose, European markets rose, with London up more than 3%, along with the shaky Italian market.
Wall Street finished more than 1.5% higher, as all 10 sectors in the S&P 500 closing higher.
The S&P 500 added 36 points, or 1.8%, to close at 2,036 and the Dow rose 270 points, or 1.6%, to finish at 17,410. The Nasdaq rallied 97 points, or 2.1% to close at 4,692 for its strongest rise in four months.
Bond yields rose, the pound edged higher, gold fell and oil also bounced 3% in US and European futures trading and the Aussie dollar was trading around 73.80 in early Asian dealings this morning.
But had it not been for the Brexit vote last week, there was one bit of data that would have sent markets off on a ‘rate rise’ looms tack and that was a better than forecast final estimate for US first quarter GDP – it rose an annual 1.1%, better than the second forecast of 0.8% and the first figure of 0.5%.
It also wasn’t to far from the 1.4% rise registered in the December quarter of last year.
That would have had the market looking at a rate rise at the July meeting of the Fed, even though the latest figure revealed a sharp fall in personal consumption – from 1.9% (annually) in the second estimate to 1.5% in the latest set of figures.
But the message from the figures is that the US economy, while sluggish, didn’t slide to a near halt in the first quarter and that might have been enough to convince the Fed to look at lifting rates next month, or at its September meeting.
Next week’s June jobs data for the US would have been the clincher if they had been better than the lower than expected May data.
US economists say there are indications the economy has regained momentum in the second quarter, with retail sales and home sales rising in April and May.
But business spending remains weak and job growth has slowed. But uncertainty following last Thursday’s so-called “Brexit” vote will see the Fed sit on its hands until the situation becomes clearer.
