Jul 04, 2016

    Markets still at risk from Brexit aftershocks

    FINANCIAL markets may have displayed a surprising degree of resilience last week, in the wake of Britain's shock decision to leave the European Union, but analysts believe that post-Brexit volatility is far from over.

    "On the surface, the financial market reaction is undeniably sanguine despite overwhelming uncertainty relating to the road ahead for Britain," said IG market strategist Bernard Aw. "This is disconcerting for me. It seemingly dismissed the gravity of the referendum outcome."

    He is not hopeful the risk rally seen last week can be sustained, given the "enormous headwinds on the horizon, alongside the political wrangling in Britain, which will fuel the lifespan of uncertainty".

    Risk appetite this week, he added, will continue to be "susceptible to swift change in sentiments arising from news headlines".

    Many financial markets across the world recovered strongly since early last week, as central banks signalled they could take steps to loosen monetary policies to cushion the impact of Britain's vote.

    Bank of England governor Mark Carney hinted at the possibility of cutting interest rates as soon as July to shield the British economy.

    The European Central Bank is considering loosening the rules for its bond purchases to ensure enough debt is available to buy, said euro-area officials familiar with the matter.

    On Wall Street on Friday, optimism over American growth and central bank action helped lift the Dow Jones Industrial Average by 0.11 per cent.

    The S&P 500 rose 0.19 per cent to log its best week since November. United States markets are shut today for the Fourth of July holiday.

    Closer to home, Tokyo added 0.68 per cent, capping its biggest weekly advance since April, as the yen pared gains amid growing speculation about further easing after Japan's top policy makers and the Bank of Japan expressed concern over the tumult in financial markets.

    Singapore's benchmark Straits Times Index gained 5.44 points or 0.19 per cent to 2,846.37 - up 110.98 points or 4.06 per cent for the week - in line with a broader post-Brexit rebound that saw traders rush in to scoop up bargains.

    Traders will be watching closely several key events this week, particularly those involving central banks.

    The Bank of England is due to release its financial stability report tomorrow, and will follow with a news conference, where questions will likely be centred on Brexit. Australia is slated to announce a decision on interest rates.

    On Wednesday, the US Federal Reserve will release the minutes from its Federal Open Market Committee meeting held in mid-June, which could provide updates on the next interest rate hike.

    The widely watched figures on US non-farm payrolls for June will be out on Friday, as North Atlantic Treaty Organization (Nato) national leaders convene for a two-day summit in Warsaw.  

    Singapore is due to report its official and private June PMI surveys from tomorrow, and possibly advance figures on the second quarter gross domestic product during the week. The Singapore market will be closed on Wednesday for Hari Raya.