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Stocks and sterling rose, while traditional safe-haven assets such as gold and bonds slipped on Wednesday, as investors were guardedly optimistic about a “Remain” vote in Britain’s European Union referendum later this week.
Riskier markets also drew support from Federal Reserve Chair Janet Yellen’s cautious comments on the US economy the previous day, in which she virtually ruled out a July rate hike.
Europe’s FTSEuroFirst index of 300 leading shares was up 0.1 per cent, Germany’s DAX was up 0.5 per cent, France’s CAC 40 was up 0.3 per cent and Britain’s FTSE 100 was up 0.1 per cent.
Basic resource stocks were among the biggest gainers in Europe, lifted by oil’s rise of almost 1 per cent.
US futures pointed to a rise of 0.1 per cent at the open on Wall Street, following on from Tuesday’s 0.27 per cent rise on the S&P 500 Index.
MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.5 per cent, chalking up its fourth straight daily gain, but Japan’s Nikkei fell 0.6 per cent thanks to a stubbornly strong yen.
The strength of the Japanese currency, often considered a safe haven asset, countered the broader increase in risk appetite across financial markets a day before Britain’s EU referendum.
“Although the Remain camp has managed to stem the recent wave of support for the Brexiteers, the outcome is still very much uncertain and trading is likely to be sporadic and volumes thin in the next two sessions,” said Kathleen Brooks, research director at Gain Capital.
“With the EU referendum on a knife-edge, the market is right to look elsewhere for direction. Some of this came from Yellen, who reinforced (the) message that the Fed will slow the pace of rate hikes if the US economy posts another dismal jobs report for June,” she said.
July off the table?
Sterling rose around 0.5 per cent against the dollar above $1.47, edging back up towards Tuesday’s near six-month high of $1.4781. The pound has risen 5 per cent since hitting a three-month low of $1.4010 on Thursday.
The polls are extremely close, but betting patterns with bookmakers have shown a re-opening of the gap in favour of “Remain” after the murder last week of a pro-EU lawmaker was deemed to have derailed the Brexit campaign.
Fed chief Janet Yellen had said on Tuesday that the risk of Brexit was something that needed watching “very carefully’’, but added that the central bank’s ability to raise interest rates this year may hinge on a rebound in hiring.
“A couple of months ago, Yellen was cautiously optimistic. Now she appears cautious while trying to be optimistic,” said Tohru Yamamoto, chief fixed income strategist at Daiwa Securities.
“Judging from her comments, a rate hike in July is completely off the table. It is questionable whether the Fed can have enough solid economic data to back up a rate hike even by September,” he said.
The dollar slipped 0.3 per cent against the yen to 104.47 yen, and the euro was last up 0.2 per cent at $1.1265.
European Central Bank President Mario Draghi had said on Tuesday that Britain’s referendum was adding uncertainty to markets, and that the ECB was ready to act with all instruments if necessary.
As investors grew more hopeful of a “Remain” vote, spot gold languished, falling 0.2 per cent to a near-two-week low of $1,262 an ounce.
On the other hand, oil prices extended their recovery after news of a larger-than-expected draw in US crude stockpiles.
Crude inventories fell 5.2 million barrels for the week ended June 17, the American Petroleum Institute (API) said. The trade group’s figures were triple the draw of 1.7 million barrels forecast by analysts in a Reuters poll. API/S
Brent crude futures advanced 0.8 per cent to $51.03 per barrel, while US crude futures’ new benchmark August contract rose 1 per cent to $50.34.
Bonds were mostly weaker, with the yield on 10-year UK gilts up two basis points to 1.31 per cent and even longer-dated yields on U.S. and German bonds inching up too.
Benchmark 10-year US and German yields were flat at 1.69 per cent and 0.05 per cent, respectively.
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