Risk aversion struck back the market overnight with DJIA reversing ahead of 18000 handle and closed down -108.75 pts, or -0.61%, at 17840.62. S&P 500 lost -14.4 pts, or -0.68% to close at 2088.55. Asian markets follow with Nikkei losing -290 pts or -1.85% while Hong Kong HSI is down -335 pts, or -1.6%. WTI crude oil dropped back to lower end of recent range is is hovering around 46.5 for the moment. Gold resumed recent rally and reaches as high as 1373.7 so far. In the currency markets, Yen and Dollar are broadly higher on risk aversion. Sterling is leading the way down and drags down commodity currencies.
In US, San Francisco Fed John Williams downplayed the impact of Brexit and said that it's just a "relatively modest risk to the US outlook". He maintained his view that unemployment will drop to 4.5% this year and inflation will continue to move up. And in William's view, Fed is still on course to hike interest rate if his growth and inflation expectations are met. And he warned that "being cautious forever would just lead us to need to raise rates much more aggressively in the future".
On the other hand, New York Fed president William Dudley said that "if you strip out the energy sector, inflation is still a little below what we would like... so that allows us to be patient in terms of letting the economy run with accommodative monetary policy in place". And, "with uncertainties about the outlook and inflation being lower than desired, it allows us to be a little more patient." FOMC will release June meeting minutes later today and would reveal more about policymakers' view on rate hikes.
ECB executive board member Sabine Lautenschläger said that there is "no reason to think about further interest-rate cuts." She emphasized the need to "weigh the usefulness of the medicine against its side effects." Last week, Bundesbank head Jens Weidmann already expressed his objection to fresh stimulus in response to Brexit. ECB's head of financial market operations Ulrich Bindseil noted that "if it turns out that the quantity of government bonds won't be sufficient over the whole time horizon of the program, national central banks start to carry out substitute purchases."
In UK, BoE governor Mark Carney warned yesterday that "there is the prospect of a material slowing of the economy." And, "the efforts of the Bank of England will not be able fully and immediately to offset the market and economic volatility that can be expected while this adjustment proceeds." And, "even taking into account movement in the exchange rate, there is a prospect of material slowing in the economy." Meanwhile, the Financial Policy Committee of BoE lowered capital requirements for banks today. The countercyclical capital buffer was cut to 0% from 0.5% of risk weighted assets. FPC expected the move to increase lending capacity by GBP 150b. And the buffer could stay at zero until at least June 2017.
On the data front, UK BRC shop price index dropped -2.0% yoy in June. German factory orders rose 0.0% mom in May. Eurozone will release retail PMI in European session. US and Canada will release trade balance.