Daily Morning Report 20.06.2016

Sterling rallied on Monday as opinion polls swung in favor of British voters opting to remain in the European Union at this week’s referendum, underpinning risk sentiment and sending the perceived safe-haven yen tumbling.

Investors took heart after three of six opinion polls published over the weekend showed a shift towards keeping Britain in the EU, but the June 23 vote still looked too close to call.

“The poll findings will resonate today, likely seeing further advances for sterling, some renewed weakening in the yen and a firmer Australian dollar,” said Ray Attrill, global co-head of FX strategy at National Australia Bank.

Even before the latest polls, data from the Commodity Futures Trading Commission released on Friday showed that currency speculators reduced their net short positions against sterling in the latest week, from a three-year high in the previous week. The pound still declined by around 3% against the dollar during the June 7-14 timeframe. [IMM/FX]

Indicating a general pick-up in risk appetite, U.S. stock futures (Esc1) rose more than 1%, suggesting a positive open on Wall Street later in the day. MSCI’s broadest index of Asia-Pacific shares outside Japan (MIAPJ0000PUS) gained 1%, and Japan’s Nikkei stock index (N225) soared 2.2%.

As a result, the yen dipped across the board – a move that may help ease some worries about the currency’s strength.

On Friday, Finance Minister Taro Aso said he was deeply concerned about “one-sided, rapid and speculative” currency moves and would respond urgently if needed – a hint at possible yen-selling market intervention.

But some analysts warned there is little conviction in markets and moves could easily reverse if sentiment turned negative.

“I don’t think these moves are sustainable because nobody can forecast what will happen,” said Masashi Murata, senior currency strategist at Brown Brothers Harriman in Tokyo.

Last week’s murder of pro-EU lawmaker Jo Cox appears to have tipped some polls toward the “Remain” camp, though earlier polls showed the electorate is narrowly divided.

“Jo Cox’s death might have been some kind of a game-changer, but maybe not. I think speculators will continue, selling the pound and buying yen, based on polls,” he said. “This is a just a rebound today, and not based on any fundamentals.”

Earlier on Monday, Japanese trade data showed that the country’s exports fell at the fastest pace in four months in May on supply chain disruptions from the Kumamoto earthquake and slow growth in emerging markets.

But looming over the euro’s upside, Germany’s constitutional court will rule on Tuesday on the emergency bond-buying plan devised by the European Central Bank during the financial crisis.

While an outright rejection of the program is viewed as unlikely after a largely favorable verdict by the European Court of Justice last year, the court could potentially upset the ECB’s current money-printing program and lead to market turmoil.

Ahead of the “Brexit” vote, Federal Reserve Chair Janet Yellen will appear before lawmakers in the U.S. House of Representatives on Wednesday to discuss monetary policy and the state of the economy.