The coming week in financial markets around the globe can be summed up in one word – Brexit.
After weeks of campaigning and market-anxiety investors awaiting the results of the UK referendum on its EU membership on Thursday night, our time.
For markets, the following quote from the Financial Times best sums up the looming impact of the vote:
“No matter which way this goes, markets will be volatile: a Remain win boosts [the pound] and yields, while a Leave win likely means a sharp fall in GBP and drop in yields but in extremely illiquid markets in which we would expect Central Banks to intervene verbally and/or physically,” James Rossiter, senior global strategist at TD Securities, said.
In fact the Bank of England has already made it clear that it will provide as much liquidity to UK markets to prevent a freeze developing. Other central banks such as the Fed, The Bank of Japan and the Reserve Bank of Australia will be closely following events in the markets this week and will no doubt follow the Bank of England in making sure liquidity is maintained.
The looming Brexit vote will overshadow what would have normally been the week’s focus – Fed chair Janet Yellen’s semi-annual testimony before the US Congress this week.
She faces the Senate Banking Committee in Washington tomorrow night our time, and follows that up with testimony before the House Financial Services Committee on Wednesday night our time.
She will be quizzed about the pace of possible rate rise sin the US, the impact of Brexit and the Fed’s changed view about the health of the US economy.
On the US data front data on home prices and existing home sales (both on Wednesday night our time), new home sales and the June manufacturing conditions survey (both Thursday night our time) and durable goods orders for May on Friday night.
In the corporate area, quarterly results are expected from Barnes & Noble, Fed Express, Carnival Group, Adobe, Black Berry, Accenture and Bed Bath and Beyond.
Facebook holds a shareholder meeting where investors will vote on a proposed new class of shares that will allow founder Mark Zuckerberg to give away his wealth without giving up long-term control of the company.
Facebook has proposed a new class of shares (called C class) as Mr Zuckerberg’s voting control has declined from 67.2% to 60.1% over the past two years.
The company also argues the new share class will be used to make acquisitions.
Besides the Brexit vote, there are two other votes in Europe in the coming week that should be watched closely.
Next Sunday sees the latest Spanish election. Opinion polls point to a stronger performance from the left wing Podemos group, but there’s also a very good chance neither the left, the centre or the right will win enough votes to govern in their own right, so long talks on a coalition lie ahead.
And the German constitutional court will deliver its final ruling on the validity of the European Central Bank’s Outright Monetary Transaction program tomorrow night.
The AMP’s Chief Economist Dr Shane Oliver says this decision is important because the program partly underpins the 2012 commitment by ECB chief, Mario Draghi to do “whatever it takes” to preserve the Euro.
It’s been that commitment that has helped maintain the ECB’s credibility and allowed it to dramatically expand quantitative easing.
In Australia, the minutes from the RBA’s last meeting are out tomorrow, and ABS data out tomorrow will give an early estimate of June quarter house price movements.
Besides the release of the June board meeting tomorrow, it’s an active week for senior Reserve Bank officials – Guy Debelle, the Assistant Governor oversee financial markets, speaks in Sydney tomorrow and at a function in Adelaide on Thursday night.
Alex Heath, the bank’s head of economic analysis, also speaks in Sydney on Thursday, as does Luci Ellis, the RBA’s head of Its Financial Stability department who is a panel member at a conference also in Sydney.
And in the corporate area, Metcash releases its 2015-16 financial results today.
Wesfarmers holds an investor day in Sydney on Wednesday from 8.30 am. Shareholders will be looking for more details about the problems at Target and how the company plans to tackle those and improve performance.The company’s coal mining operations in Queensland will also come under scrutiny. Both Target and the Queensland coal operations were the subject of $2.3 billion of impairments in May.
