Friday, July 1, 2016
Today's Spotlight Market: Just a week ago, worldwide markets were shocked when voters in the United Kingdom voted narrowly to leave the European Union in a non-binding referendum. The British Pound plummeted, along with the FTSE 100 and most European and United States equity markets. The United Kingdom and European Union appear to be headed for an extended period of economic and political turmoil. Mark Carney, Governor of the Bank of England, has indicated that he believes interest rate cuts may be necessary, and he believes the economic outlook is deteriorating due to so much uncertainty.
Prime Minister David Cameron immediately announced his resignation, setting off a leadership battle in the UK House of Commons. Theresa May, who was a Remain supporter and Michael Gove are the two main challengers as of this writing. To add to the political chaos, there was revolt among the Parliamentary members of the opposition Labour party, starting when Leader of the Opposition Jeremy Corbyn sacked Hilary Benn in the middle of the night last weekend. Over 2/3 of the Shadow Cabinet subsequently resigned and Mr. Corbyn lost a vote of no confidence. This sets-up a possible leadership battle for the Labour Party as well in the weeks ahead. To add to the confusion, the third major party in the UK, the Scottish National Party, has indicated that they do not wish to abide by the results of the referendum. They claim, since Scotland voted overwhelmingly to remain in the European Union, that Scotland should consider a vote on independence from the United Kingdom. All of these changes may very well lead to political realignment in the United Kingdom. Under the Fixed Terms of Parliament Act, there is no need to call a general election until 2020, but the resulting leadership changes and potential for cross-party alliances, may result in an early general election.
The referendum results jolted a previously choppy to mildly bullish market into strong bear territory within hours. The 20-day Simple Moving Average (SMA) quickly turned below the 50-day SMA, and the curve is steepening. 14-day Relative Strength Index is a bearish 32.84.
Dale Jennings, Commodity Analyst