Market Turmoil Presents Traders with Valuable Opportunities…

Global markets have had to endure tumult in recent days. For the week ending Friday, 10 June, equities markets were sharply lower from Asia through Europe and the Americas. Brexit fears continue to weigh heavily on the minds of investors and a series of recent Brexit polls indicate a growing number of Brexiteers, contrary to what was expected. One of the first casualties in this volatile trading environment is the GBP and the sterling has come under intense selling pressure as a result.

The GBP/USD currency pair has weakened dramatically and bearish sentiment is pervasive. The latest ORB survey revealed that 55% of eligible Britons would vote to leave the European Union while just 45% want to remain. It appears that sentiment is focused on the issues of immigration and border safety, as well as the burden that is being placed on the National Health Service and other UK public institutions. The online poll had a sampling size of 2,052 respondents. The GBP was pounded from all sides as it dropped 0.8% against the euro and 1.4% against the greenback.

In the US, the shockwaves from Brexit fears were felt on all major indices on Wall Street. The S&P 500 index, the NASDAQ composite index and the Dow Jones all ended lower, and this trend is expected to continue throughout the week as the dual effects of the Fed interest rate announcement after the FOMC meeting on June 14-15, and the upcoming Brexit vote eight days later. The Fed is unlikely to hike interest rates at such a critical juncture in the global economy, given the latest Brexit polls.

1 – Analysts’ perceptions of the GBP/USD currency pair

As mentioned earlier, the pound has had a torrid time of late. It slipped 1.4% against the greenback to $1.426. The GBP has been the worst-performing currency of the G-10 currencies for 2016. For the year to date, the GBP/USD pair has shed 1.86% which isn’t entirely a train smash given the resilience of the sterling. The pair started the year at $1.4738 and is now trading at $1.4255.

The reverse pair, the USD/GBP has gained 1.90% for the year and most of that has come in recent weeks. The GBP/USD pair has a 52-week trading range of $1.3837 on the low end and $1.5930 on the high-end. The performance of the GBP on Friday, 10 June marked its biggest daily loss since the 22nd February 2016.

The historic Brexit referendum has monopolized headlines around the world and will continue to do so over the next 10 days. One thing that financial markets despise more than anything else is uncertainty. And this Brexit vote is providing plenty of that, given the wild swings in public opinion from day-to-day. The fact that there is a binary outcome for the Brexit vote is equally disturbing – Britain will either leave the EU or it will remain in the EU.

Currency markets thrive on uncertainty and there has been a strong upsurge in trading the GBP/USD pair with binary options traders, conventional Forex traders and speculators across the board. Analysts caution that the GBP is a bearish prospect in coming days, but it is all dependent on the polling.

2 – Analysts look to safe-haven commodities such as gold bullion

With equities markets plunging and unprecedented demand for fixed-interest-bearing government bonds, the natural expectation is that gold will gain favour. The price of the yellow metal is $1,273.54 an ounce, up 0.01% or $0.14. The 30-day performance of gold is lacklustre with 0.09% declines.

However, the 6-month performance of the precious metal is bullish with 18.67% appreciation or $200.30 per ounce. Gold has clearly been one of the star performers for the year to date and this is bolstered by the massive volatility leading up to the Brexit vote, concerns about the Fed not adopting a hawkish approach and weak economic data coming from the US economy.

ANZ – a leading global bank – expressed bullish sentiment about prospects for gold which could hit as high as $1,400 if a Brexit comes to pass. Risk-averse traders are carefully eyeing the Brexit referendum, and it looks like jackpot gold. The price of the precious metal hit $1,300 an ounce in May, but has been struggling to trade at the $1270 per ounce level in recent days.

But, if the Fed decides not to act and raise interest rates by 25-basis points on 15 June, this will be good for gold. The big boost for gold will come within the next 10 days as anxiety increases ahead of the Brexit vote. From January through April 2016, gold appreciated by 16%, and flirted with the $1,300 per ounce level.

Gold struggles in times of rising interest rates because the precious metal does not pay any interest. If, and it’s a big if, the UK decides to leave the EU, the GBP will collapse and global uncertainty will roil financial markets. Gold will be a massive beneficiary.

3 – Banking Stocks Hit Hard as Risk-off Approach Rocks Equities Markets

Citigroup Inc. (NYSE: C) is currently trading at $43.90 per share, down $1.11 or 2.47%. The stock has shed 3.37% in the past 5 days, and -1.28% in the past 1 month. For the year to date, Citigroup Inc. stock has dropped 15.17%, after opening the year at $51.75 per share. The stock has a 52-week low of $34.52 and a 52-week high of $60.95 per share.

The price/earnings ratio is 8.77 and the EPS is $5 per share. At current prices, the market capitalization of Citigroup Inc. is $128.843 billion. Given the decreased likelihood of an imminent rate hike, banking stocks across the board have shed gains.

Analysts are of the opinion that Citigroup is a buy at a rating of 1.9 on a rating scale of 1.0 (strong buy) to 5.0 (strong sell). The mean target price for the stock is $56.11, with a high of $70 per share and a low of $44 per share. Interestingly enough, the sentiment of research firms across the board is largely bearish with the following upgrade/downgrade reported:

• On 7 January 2016 Portales Partners upgraded the stock from an underperform rating to a sector perform rating
• On 1 March 2016, Atlantic Equities downgraded the stock from an overweight rating to a neutral rating
• On 18 April 2016, Keefe Bruyette downgraded the stock from an outperform rating to a market perform rating

Given that a June 15 rate hike is unlikely, banking stocks are going to be browbeaten this week.

4 – The FTSE 100 Index is looking like a Bearish Prospect

The FTSE 100 index is currently trading at 6,115.76, down 1.86% or 116.13 points. The index has a 52-week trading range of 5,499.50 on the low end and 6,873.40 on the high-end. It is the bank stocks that are dragging European bourses lower, and the FTSE 100 index is no exception. For the year to date, the index has shed just 2.03%, indicative of the resilience of this index.

However, Brexit concerns have dragged it lower in recent days, and the 5-day performance has shown losses of 2.23%. Over the past trading day alone on Friday, 10 June 2016, the index closed 1.86% lower after opening the day at 6,208.44. Investors are definitely adopting a risk-off approach to equities markets and this one is looking like an anathema.