Telemus Weekly Market Review

June 20-24, 2016 

The stock market gallivanted higher though the first four days of the week, but the upbeat attitude dissipated on Thursday evening after it became clear that the British referendum on membership in the European Union, commonly known as “Brexit”, ended with a 51.9% victory for the “Leave” camp. The resulting Friday selloff sent the S&P 500 lower by 3.6%. The index slid below its 50-daymoving average (2080), surrendering 1.6% for the week. The Dow closed down over 600 points on Friday to end the week at 17,400.75 and the NASDAQ finished down over 200 points to end the week at 4,707.98.

Although the weekly decline in the S&P 500, Dow and NASDAQ did not look particularly concerning, the moves that unfolded in the foreign exchange market caught the attention of many. The final set of polls released ahead of the referendum pointed to a growing edge for the “Remain” camp, which lulled some market participants into a false sense of security. The pound notched a fresh six-month high against the dollar at 1.5018, but reversed in a flash after actual results began pouring in.

The first signs of an impending reversal in the foreign exchange market began appearing around 18:00 ET on Thursday when the pound started backing away from its high. This took place after it was reported that the ‘Remain’ camp secured just a slight victory in Newcastle, where status quo was expected to prevail by a large margin. Subsequent vote counts hinted at a much closer result than it was first expected, which invited risk-off positioning into capital markets.

At its lowest point, the pound was down nearly 11.0% against the dollar, but that decline was narrowed to 8.0% by the end of Friday. The volatility left the pound down more than 1,000 pips versus the dollar for the day, which is a move that would be expected to unfold over a few weeks under typical conditions.

U.S. Treasuries surged in reaction to the developments, pressuring the 10-yr yield to 1.40% at one point — its lowest level since mid-2012 – before closing at 1.56% on Friday. Gold jumped 4.7% on Friday to a two-year high. Crude also fell ending the week at $47.57.

The defensive finish to the week weighed on rate hike expectations, and the fed funds futures market now sees a higher chance of a rate cut in July (7.2%), September (7.2%), or November (7.0%) than that of a hike in November (1.9%). Looking farther out, the likelihood of a hike in February 2017 sits at a lowly 22.3% now.

June 27 – July 1 What To Look For

  • Monday
  • International Trade in Goods
  • PMI Services Flash
  • Dallas Fed Mfg Survey
  • S&P Case-Shiller HPI
  • Consumer Confidence
  • Richmond Fed Manufacturing Index
  • State Street Investor Confidence Index
  • Tuesday
  • GDP
  • Corporate Profits
  • Redbook
  • S&P Case-Shiller HPI
  • Consumer Confidence
  • Richmond Fed Manufacturing Index
  • State Street Investor Confidence Index
  • Wednesday
  • MBA Mortgage Applications
  • Personal Income and Outlays
  • Janet Yellen Speaks
  • Pending Home Sales Index
  • EIA Petroleum Status Report
  • Farm Prices
  • State Street Investor Confidence Index
  • Thursday
  • Jobless Claims
  • Chicago PMI
  • Bloomberg Consumer Comfort Index

  • EIA Natural Gas Report
  • James Bullard Speaks
  • Fed Balance Sheet
  • Money Supply
  • Friday
  • Motor Vehicle Sales
  • PMI Manufacturing Index
  • ISM Mfg Index
  • Construction Spending
  • Loretta J. Mester Speaks
  • Baker-Hughes Rig Count
  • State Street Investor Confidence Index

PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. This market commentary is a matter of opinion and is for informational purposes only.  It is not intended as investment advice and does not address or account for individual investor circumstances.  Investment decisions should always be made based on the client’s specific financial needs, goals and objectives, time horizon and risk tolerance.  The statements contained herein are based solely upon the opinions of Telemus Capital, LLC.  All opinions and views constitute our judgments as of the date of writing and are subject to change at any time without notice. Information was obtained from third party sources, which we believe to be reliable, but not guaranteed.