Low Bond Yields Highlight Lingering Investor Anxiety

What a difference a few days make.  Many saw last week's equity market advance a sign that Brexit anxiety was overdone.  However, quarter-end position adjustments appear to have been misread.  Equity markets are falling now. Bond yields in the US, Japan, and Germany, are at new record lows.  Japan's 20-year bond yield briefly dipped below zero for the first time. 

Japan's Next Lackluster Election Comes this Weekend

On 10 July, Japanese voters will go to the polls in the triennial upper house election. The candidates will be all-too-familiar faces; the party leaders wooden; and policy menus unpalatable. The contest is for only half the seats and voters are expected to either vote for the political status quo or not vote at all.

Some Asian Economies can Enjoy the TPP and RCEP

Talks just concluded in Auckland, New Zealand on Saturday show that plans for the Regional Comprehensive Economic Partnership (RCEP) are advancing. Just as both Hillary Clinton and Donald Trump, the next potential leaders of the Trans-Pacific Partnership’s (TPP) biggest partner—the US—have distanced themselves from the agreement. Some even suggest that the US Congress won’t ratify the TPP agreement, and warn that the world economy risks US isolationism.

Tuesday Morning Quarterback

Monday, while Americans were celebrating the original Brexit, the US dollar drifted lower.  The Australian dollar fully recovered from electoral uncertainty drop to finish about 0.5% higher.  Asian and emerging market equities rallied, but Europe faltered.  The MSCI Asia-Pacific Index gained 0.8% to extend the advancing streak to a fourth session.  MSCI Emerging Market equity index extended its streak to five sessions by rising 0.5%. 

British Brexit was a Victory for Far Right Politics

The Leave Campaign’s relentless focus on immigration has seen a rise in hate crime and been acclaimed by Far Right groups across the EU.

Members of the victorious Leave Campaign in June 23’s referendum on EU membership (Brexit) claimed to have noble ambitions for the UK. They wanted to “take back sovereignty” and “democratic control”.

That was Quick...UK already Losing Influence

There have been two developments that are shaping investment climate.  The first was the dramatic rally in equity markets last week, with many recovering nearly all that was lost on the Brexit wobble.  The second was clear indications that the UK will not begin the formal divorce proceedings in the coming months. 

That had seemed likely when Cameron said he would leave it to his successor.  However, the leading Tory candidates are suggesting that Article 50 will not be invoked this year.

Flag Patterns for the Dollar and Euro seem Fitting

The US dollar turned in a mixed performance in the week after the UK decision to leave the EU.  There was an acute market reaction for a couple of days, but the disruption to the financial system was not major.

Officials and investors feared worse. The initial line of defense, central bank swap lines were barely used. The Bank of Japan was the only central bank to draw on the Fed's lines, and even then, the amount was inconsequential ($2 million).

BOE: Monetary Policy Talks in High Gear

Investors are debating over whether the Bank of England ease policy at the July 14 MPC meeting or wait until August Quarterly Inflation Report when new post-Brexit forecasts will be ready.  There are many dimensions to monetary policy, and the first move could come next week. 

Market Participants Welcome the Weekend

The US dollar is little changed ahead of what will likely be a thin North American session due to the US holiday on Monday.   The Australian and New Zealand dollars are attracting flows, ostensibly as a place to park funds, even though tomorrow's Australian election looks a dead heat.