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FXTM Analysis: Global Markets In State of Shock Over UK Referendum Outcome ‎

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The financial markets and spectators across the globe are in a complete state of shock following the unexpected outcome to the EU referendum that the UK has voted to leave the European Union.

Markets were completely reliant in the final lead up to the vote on following the bookmakers, who heavily favoured a one-sided remain and as such, were simply positioned for only a remain outcome.

Investors were guilty of ignoring the consistent opinion polls that repeatedly pointed out that the vote was going to be close and as a result, the possibility of a UK exit had been severely under-priced throughout the financial markets.

Make no mistake, around this time last year the markets were in complete pandemonium over what implications a “Grexit” could have on the global markets and the ramifications of a “Brexit” will carry far more severe risks.

What happens next? ‘Sell the news’ is going to become the name of the game.

Despite all of this historic movement in the British Pound overnight, this eventual outcome has not been priced into the equity markets, and the open to both the European and US session later today is going to be under the watchful eye of the world.

The GBPUSD itself dropped from a cliff overnight, and has recorded historic losses from 1.50 to 1.32 in a matter of hours.

It is important to point out that the reason for the GBPUSD falling to such extraordinary levels is not just limited to the UK voting to exit the European Union, investors have been very quick to also price in the uncertainty over the future of UK Prime Minister David Cameron and also the likelihood that this shocking news possibly opens the doors for another Scottish Referendum down the road.

There are also many other unanswered questions such as would this impact the UK’s credit rating and how will the Bank of England (BoE) react to such a shock.

There has also been an expected correlated move in the Eurodollar overnight, which itself has declined from 1.14 to just above 1.09 as a result of questions now lingering over the future of the European Union as a whole.

Headlines have circulated over the past hour alone around political parties in both Italy and France possibly planning on campaigning for their own referendums in the future.

I would personally not see this as a major threat for the time-being, but it could be interesting to monitor the possible reaction to Denmark and Sweden following the news that the UK has voted to leave the European Union. ‎

It must also be made clear that the unexpected shock overnight must have implications on the Federal Reserve and their intention towards raising US interest rates later in 2016.

With so much uncertainty set to surround the global economy, US interest rate expectations must be pushed back and Federal Reserve Chair Janet Yellen was very explicit in stating the risks a Brexit outcome could provide to the global economy.

This possible correlation has not quite yet been priced into the Dollar and if US futures point as sharply lower as what the European futures are currently suggesting, there is a threat of a knock-on effect on the Dollar.

We saw the USD plunge sharply lower following the events of Black Monday in August and it is possible history could repeat itself if US markets enter trading under such heavy pressure.

Gold has reached its highest level since March 2014 as a result of safe-haven demand following the United Kingdom voting to leave the EU.

After reaching levels beyond $1350 earlier in trading, Gold is now consolidating somewhere around the $1320 region. If risk aversion sweeps across the financial markets as expected following diminished risk appetite from investors, Gold could continue to see further support due to its status as a safe-haven asset.

Of course, this would be even more possible if US interest rate expectations do get pushed back as a result of such a shock overnight.

Due to limited attraction towards risk from investors, the oil markets have dropped as expected because concerns over the global economy would naturally make investors question demand for the commodity.

What does this mean to the Bank of Japan? A UK exit outcome represents their worst nightmare. With risk aversion now likely to be a theme in the markets for a prolonged period following such a shock overnight, there is quite simply nothing the central bank can do to prevent Yen demand from traders.

Can they intervene? Yes they can, but it would not be a wise idea to even consider this until this outcome has been priced in across the financial markets.

If the BoJ are not patient in allowing investors to adjust to the outcome of the referendum and the possible ramifications, the BoJ simply risks entering a game of cat-and mouse. In times of uncertainty the Japanese Yen becomes the best friend for traders and despite all of the unbelievable gains for the Yen throughout the first six months of 2016, the outcome to the overnight referendum has just encouragement towards the Yen towards new levels. 

Quite simply put, the reaction to Gold, the Japanese Yen and how heavy equity markets are at threat to falling is the simplest reflection of how unprepared traders were for this outcome.

By Jameel Ahmad, VP of Market Research at FXTM


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E-Financial

Lagos State Appoints MoneyMaster as Payment Partner for “Ounje Eko” Programme

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“Ounje Eko”, the food price discount initiative of the Lagos State Government, has appointed leading payment service bank, MoneyMaster Payment Service Bank Limited (MMPSB), as its collaborator in the bid to ensure ease of payments at the market.

MoneyMaster is one of the Central Bank of Nigeria-licensed Payment Service Banks (PSBs) to promote financial inclusion across Nigeria.

Under the partnership, MMPSB will apply its cutting-edge payment solution to engender easy payment and reconciliation in order to make   the experiences of Lagosians who will be getting their food supplies from the markets pleasurable. Its payment solution is also all-encompassing and ensures real time value to payment destinations.

The mobile bank was appointed as the collection and payment partner for “Ounje Eko” Food Markets programme which is a government initiative serving the five divisions of Lagos State. Consequent on this, MoneyMaster Payment Service Bank will collect payments in 57 LCDAs in the state.

The partnership gives credence to the quality of payment solutions that MoneyMaster is reputed for in its services to its growing business clientele in private and public sectors.

 


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CBN, EFCC Probe Banks, Firms over Alleged Forex Racketeering

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Central Bank of Nigeria (CBN), is investigating irregular foreign exchange transactions and forward contracts valued at approximately $2.4 billion.

CBN, EFCC Probe Banks, Firms over Alleged Forex Racketeering

The  inquiry follows an extensive audit by Deloitte, which scrutinized $7 billion in dollar debts accumulated under the bank’s previous leadership.

In the aftermath of the 294th Monetary Policy Committee meeting in Abuja, Yemi Cardoso, governor of CBN,  disclosed to journalists that the investigation, supported by the Economic and Financial Crimes Commission, among other security bodies, aims to clarify the legitimacy of these FX allocations identified as problematic by the audit.

“It was determined that a number of these transactions did not qualify…they were outright illegal. The law enforcement agencies are now looking into those transactions that as far as we are concerned, are not valid to be paid,” Cardoso detailed, emphasizing the unlawful nature of these forex deals.

The crux of the investigation lies in the audit findings that a significant portion of the scrutinized transactions lacked proper documentation and, in many instances, were deemed outright illegal.

However, the unfolding investigation has raised concerns within the organized private sector, with some entities contemplating legal action against commercial banks for unresolved forex bids.

Despite these tensions, Governor Cardoso reassures that the foreign exchange market remains open and transparent, inviting stakeholders to address their forex needs through the official channels.

Furthermore, Cardoso clarified the distribution of fertilizers to farmers as a one-off measure and not indicative of a shift back to direct interventions by the CBN, underscoring a commitment to strategic, regulatory governance rather than direct market involvement.

 

 

 

 

 

 

 

 


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CBN Urges Banks to Expedite Action on Recapitalisation

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Central Bank of Nigeria (CBN) has directed deposit money banks in the country to expedite action to increase their capital base from the current ₦25bn.

CBN Urges Banks to Expedite Action on Recapitalisation

Olayemi Cardoso, governor of CBN

Olayemi Cardoso, governor of CBN, stated this during the apex bank’s 294th meeting of the Monetary Policy Committee (MPC) on Tuesday in Abuja, when the MPC hiked the interest rate by 22.75% to 24.75%.

The apex bank chief said the MPC examined developments in the banking sector and expressed satisfaction that the industry remained stable. The committee, however, said to guard against risk, commercial banks in the country should accelerate their recapitalisation efforts.

Cardoso said, “The MPC also reviewed developments in the banking system and noted that the industry remains safe, sound, and stable. The committee thus called on the bank to sustain its surveillance and ensure compliance of banks with existing regulatory and macro-potential guidelines.

“The MPC also enjoined the banks to expedite actions on the recapitalisation of banks to strengthen the system against potential risks in an increasingly globalised world.”

 

 

 

 


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