With markets starting to settle down the outlook of a Brexit remains and this could still yet drive more safe haven purchases this week

1. Weekly Outlook
Monday 4th July with Richard Perry, Market Analyst
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WHEN: Fri, 8th July
LAST: 38,000
FORECAST: 175,000
Impact: Are days of consistently more than 200,000 on
Non-farm Payrolls over? Payrolls have been steadily
falling for a few months as the unemployment rate has
dropped below 5.0% and average hourly earnings have
started picking up, suggesting that there is less slack in
the labor market. However the drop in the participation
rate is a worry for the Fed. Expectation is for a pick up
to 175,000 (watch also for revisions to prior months),
whilst the other big focus will be on the average hourly
earnings which would pick up again to +2.7% if
forecasts are hit. Expect lots of volatility as usual.
Key Economic Events
Date Time Country Indicator Consensus Last
Tue 5th July 10:00 Australia RBA monetary policy +1.75% +1.75%
Tue 5th July 15:00 China Caixin Services PMI 52.3 51.2
Tue 5th July 09:00 Eurozone Composite PMI 52.8 52.8
Tue 5th July 09:30 UK Services PMI 52.7 53.5
Wed 6th July 15:00 US ISM Non-manufacturing PMI 53.3 52.9
Wed 6th July 19:00 US FOMC minutes
Thu 7th July 13:15 US ADP Employment change 160,000 173,000
Thu 7th July 16:00 US EIA Crude Oil Inventories -4.1m
Fri 8th July 13:30 US Non-farm Payrolls 175,000 38,000
Fri 8th July 13:30 US Unemployment / Average Hourly Earnings 4.8% / +2.7% 4.7% / +2.5%
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1N.B. Please note all times are BST (GMT+1), data source Reuters
Macro Commentary
Markets may now be beginning to settle into life post-Brexit, but whilst the volatility is seemingly subsiding, perhaps
it will take a little longer for some of the scars to heal. The word “uncertainty” could dominate the outlook for the
coming weeks and perhaps months, with the UK now facing political upheaval (both Conservatives and Labour look
set to face leadership battles), whilst the economic impact on the UK could take months if not years to play out.
One steadying hand on the tiller is Mark Carney, the Bank of England Governor. His assessment that there is likely
to be some monetary policy easing in the summer means that markets will be looking squarely at a rate cut or more
quantitative easing at the August meeting of the MPC. This is the next Quarterly Inflation Report meeting and will
give a little time for the dust to settle. This material change to the economic outlook and monetary policy will keep
the downward pressure on sterling in the weeks ahead. Rallies are likely to continue to be seen as a chance to sell,
whilst investment bank forecasts suggest Cable in the low $1.20s cannot be ruled out. FTSE 100 is a curious
beneficiary of this with many constituents generating overseas revenue and benefitting strongly from the sterling
demise. I continue to see a safe haven preference in the coming months with the competitive devaluation and rave
to the bottom helping the dollar and Japanese yen outperform. Precious metals will also benefit.
Must Watch for: US Employment Situation – Non-farm Payrolls
Non-farm Payrolls
Set to pick up from the lowest print since Sept 2010

2. Weekly Outlook
Monday 4th July with Richard Perry, Market Analyst
Foreign Exchange
Markets are still finding their feet again after a whirlwind week last week in the wake of the Brexit decision. The
inference is that the US dollar will be a winner out of the uncertainty and flight to safety. Although Brexit may
push back the Fed’s decision to hike interest rates into 2017, there could be a more pronounced bout of
competitive devaluation (as feared by Mario Draghi recently). The Bank of England already seems set to cut
rates (according to Mark Carney last week) so it is not unreasonable to expect the Eurozone to react too at its
meeting on 21st July. The Eurozone is also potentially under pressure from the contagion of any economic
slowdown in the UK. Subsequently expect to see the euro underperforming in the coming weeks. The Bank of
Japan is another prime candidate for easing, which in fairness this was likely to move at its meeting on 28th/29th
July even before Brexit. However the yen’s status of the go-to safe haven currency (even over the dollar)
means trading the yen could be a tricky business depending upon the extent of the BoJ’s action that is surely
now to happen. The Bank of Australia is first up though on Tuesday and it will be very interesting to see the
reaction of the broader market, although not being expected to cut rates or release a statement there could be
limited steer. I continue to expect the safer havens to benefit this week.
WATCH FOR: US Independence Day holiday meaning a subdued Monday, before RBA drives risk
appetite on Tuesday, ISM Non-Manufacturing on Wednesday and Non-farm Payrolls on Friday
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FX Outlook
GBP/USD
Watch for: Further weakness on sterling and a
possible test of $1.3118
Outlook: In the wake of Brexit, sterling remains
under significant bearish pressure. The technical
rally in the wake of an 11% sell-off seems to
have been short lived and found resistance at
$1.3533 prior to another decline induced by
Mark Carney’s dovish comments. The pressure
subsequently remains on the post-Brexit initial
support at $1.3118. With negative configurations
across the momentum indicators, rallies will be
seen as a chance to sell and the concern is that
there is no support on a breach of $1.3118 which
would be another 31 year low. The psychological
$1.3000 would be a realistic target but into the
$1.20s would also be possible. The overhead
resistance is strengthening now in the range
$1.3533/$1.3555 now, whilst up towards
$1.3833 would be still bearish.
EUR/USD
Watch for: Rallies will be seen as a chance to
sell
Outlook: Brexit has driven a breakdown of the
big uptrend channel since November 2015. The
underside of this channel could now become the
basis of resistance and is currently around
$1.1200 this. Moving averages are resistance
now and momentum is negatively configured
which suggests that rallies will be seen as a
chance to sell. I favour a sell zone of between
$1.1100 and $1.1215 for further weakness back
to test the supports at $1.0968 and $1.0909
before eventually dropping back towards
$1.0800.

3. Weekly Outlook
Monday 4th July with Richard Perry, Market Analyst
Equity Markets
The reaction to Brexit by the FTSE 100 has been remarkable. After the initial shock, there have been four
straight days of huge gains to steer the FTSE 100 to its highest level since August 2015. This was certainly not
in the script, with many forecasts prior to the referendum suggesting that the index could retreat to its 2016 lows
on a Brexit. Perhaps there will be a further volatile sell-off further down the road, however perhaps a better
proxy for the share prices of UK plc is the FTSE 250 which did indeed hit its 2016 lows. The internationalisation
of the FTSE 100 has certainly been its saviour this time. The perception being that the huge drop in sterling has
actually benefitting companies that generate revenues overseas and make dollar denominated dividend payers
relatively more attractive. The picture is not so rosy for the DAX which sees German exporters to the UK not so
happily set. Mario Draghi expects the UK to cut around 0.5% off Eurozone GDP and although the euro is
expected to weaken too, the next affect on a trade weighted basis is only anticipated to be around 0.5 off the
euro index (weakness against the dollar is offset by the strength against sterling). This has resulted in DAX and
CAC suffering and drastically underperforming the FTSE 100. In the days since the Brexit decision, the FTSE
100 has actually gained over 3.5%, whilst the DAX is down 2.8% and the CAC is off 4.5%. As ever, more of an
insulated market, the S&P 500 has only lost around -0.5%. Can this FTSE 100 performance continue? I fear
that if sentiment around the UK remains negative then this could begin to filter into equities too again.
WATCH FOR: Focus more on US announcements this week with ISM Non-Manufacturing, Fed Minutes
and Non-farm Payrolls.
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3
German DAX
Watch for: Expect the volatility to continue with
9897 once more an overhead barrier
Outlook: The DAX is an incredibly very messy
chart post-Brexit. An enormous downside gap
remains a gaping hole in the chart and is as yet
still unfilled, by a matter of hundreds of ticks. I
said several weeks ago that the DAX had
developed into a very wide trading range and
there is little real change to this outlook even
now. There is very little trend analysis that is
reliable. However, the Fibonacci retracements of
8355/12390 which had been working well on the
major reversals can be used as a loose guide
now with 61.8% at 9897 the next overhead
barrier. Momentum reflects a marginal bearish
bias for the medium term something backed by
trading below falling moving averages.
FTSE 100
Watch for: Can the bulls start to dream of the all
time highs again?
Outlook: On a technical basis the more bullish
technical analysis will have been crowing about
a breakout above 6487 that arguably completed
a huge head and shoulders reversal which if the
full implied target derived from the 2016 low of
5500 measured to 6487 means 987 ticks of
further upside (equating to at least the 7071
high). I am more sceptical and view the recent
gains as part of the volatility of the post-Brexit
market which is likely to see choppy trading in
the coming weeks. The breakout becomes
initially supportive in the range 6380/6487. Next
resistance is 6765/6805 but I expect another
retracement move this week.
Index Outlook

4. Weekly Outlook
Monday 4th July with Richard Perry, Market Analyst
Other Assets: Commodities & Bonds
Precious metals are trading in something of a sweet spot now. In the wake of Brexit, it appears as though
central banks are set to renew their tacit strategy of competitive devaluation. Quite understandably, the Bank of
England is likely to be the main candidate however others could follow suit. This means that once more a lurch
to increasingly loose global monetary policy (along with the prospect of the Fed putting off a rate hike to 2017),
all of which is supportive for gold and silver. The oil price initially reacted to the prospect of potentially lower
global growth in the wake of Brexit and there has been a certain degree of positive correlation with risk appetite,
however supply issues remain the key driver. Continues decline in the EIA oil inventories is supportive but
Norway and Nigeria improving their supply disruptions means that oil is in range phase for now.
The flight to safety on concerns over Brexit has driven investors around the world once more into the safe
haven of government bonds and yields are falling again. The US 10 year yield is back around multi-year lows
again as investors concern over global growth remains. The Brexit decision does not appear to have dampened
appetite for UK government debt either. The yield on UK Gilts has plummeted despite the loss of its AAA credit
rating. It appears as though UK government debt is still seen as attractive and that ratings agencies are being
paid scant regard.
WATCH FOR: Focus turns to UK data with ISM Non-Manufacturing, Fed Minutes and Payrolls key
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Gold
Watch for: A test of $1358 as the bulls regain
control
Outlook: The Brexit-inspired breakout above the
resistance band $1303/$1306 was held on a
pullback correction last week and the bulls
appear to be regaining the impetus for the next
upside leg again. The technical indicators retain
a positive configuration but also with further
upside potential with the RSI yet to hit 70 whilst
the bull run of January/February moved to 86
and the indicator spent around 2 weeks above
70. The market is set up for a test of the Brexit
high at $1358, above which the bulls will be
looking at the 2014 high of $1391. I now see any
correction as a chance to buy, with the support
band $1250/$1306 an ideal buy zone medium to
longer term, with nearer term support at $1335.
Markets Outlook
Brent Crude oil
Watch for: Consolidation needs a break above
$51.25 to regain the bull impetus
Outlook: The consolidation that has formed over
the past few weeks has resulted in the outlook
turning increasing range-bound. The uptrend
channel was briefly breached post-Brexit to test
the bullish medium term outlook and support has
formed now at $46.70 to keep the bears at bay.
However there needs to be a break above the
resistance at $51.25 to re-engage the bulls to
retest the recent recovery high at $52.86 again.
Momentum indicators have lost their impetus
and look more neutrally configured now with the
RSI between 40/60 and MACD lines flattening
around neutral.

5. Weekly Outlook
Monday 4th July with Richard Perry, Market Analyst
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