Investors Calm As Brexit Negotiations To Begin March 29th, Spot Gold Boosted By Less Hawkish Fed, ASX Futures -11

The U.K. will officially trigger Brexit negotiations on Wednesday the 29th of March a U.K. envoy to the EU President Donald Tusk overnight. Given the market has been anticipating this for months, the reaction in financial markets was muted. The Pound declined -0.28% after touching the highest levels in three weeks, U.K. two-year yields were unchanged at 0.085% and the ten-year yield declined just 1 basis point to 1.235%. The FTSE100 edged higher, up +0.07% sitting modestly below the all-time high of 7,447 while the more domestically focused FTSE250 gained +0.30% to close a new record high.

Investors don’t seem to be pricing a significant degree of risk ahead of the two-years of negotiations. The implied one month volatility for the Pound is sitting at the lowest levels since January 2016 and the one month implied volatility for the FTSE100 at the lowest levels since January 2014, implying a calmness around investors. The spread between the U.K. and German two-year yields is sitting well of recent highs and below level prior to the Brexit referendum shown on the first chart below. While this has predominantly been a result of rising German yields, overall U.K. yields do not seem to suggest any significant risk premium

Elsewhere spot gold continues to rise after bouncing of the psychological support level at US$1,200 shown on the second chart below. The precious metal initially gained following Trumps election as a hedge against inflationary policies but is now being boosted by a less hawkish Fed, which in turn increases demand for the precious metal as a hedge against inflation.

Overnight a number of Fed speakers reiterated the recent message that the Fed remained on track for three hikes this year should inflation and unemployment continue to evolve with expectations. Chicago Fed President Charles Evans noted that “three for the entire year is entirely possible” while the lone dissenter at last week’s meeting in favour of leaving rates unchanged, Minneapolis President Neel Kashkari suggested there was no rush to raise rates stating there was no threat of high inflation.

Monday was very data light providing little in the way for guiding markets, the Nasdaq100 gained modestly up +0.08% while the S&P500 edged lower by -0.20%. The U.S. dollar index was flat, up just +0.02%, and both the two & ten-year treasury yields declined -2.5 & -3.5 basis points respectively.

Locally the ASX200 index finished -0.36% lower on Monday and this morning we can expect a softer start to trade with ASX SPI200 futures down -11 points in overnight trade. If you’re interested in trading global markets and still need practice, click here to open a free $100,000 Rivkin Trader account.

Data releases:

·         Australian Weekly Consumer Confidence (Mar 19) 9:30am AEDT

·         Australian House Price Index (QoQ & YoY Q4) 11:30am AEDT

·         RBA Minutes 11:30am AEDT

·         U.K. Consumer, Retail and Producer Prices (MoM & YoY Feb) 8:30pm AEDT

Chart 1 – U.K. – German 2 Year Yields

Chart 2 – XAUUSD (Spot Gold)


Source: Rivkin, RivkinTrader

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This article was written by James Woods - Global Investment Analyst, Rivkin Securities Pty Ltd. Enquiries can be made via james.woods@rivkin.com.au or by phoning +612 8302 3631.

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