US Crude Unchanged as Markets Await Brexit Decision

WTI crude is unchanged on Thursday, trading at $49.42 in the North American session. Brent crude is trading at $50.43, as the Brent premium has widened to $1.01. On the release front, Existing Home Sales improved to 5.53 million, matching the estimate. On the release front, US numbers were a mix. US unemployment claims slipped to 259 thousand, below expectations. However, New Homes Sales dropped to 551 thousand, well short of the forecast. Today’s highlight is the Brexit referendum vote in the UK.

All eyes are nervously following today’s Brexit vote in the UK. After a bitter and hard-fought campaign, millions of Britons are voting on whether the country remains in the EU or exits from the bloc. Most polls show a neck-and-neck race between the Remain and Leave camps, so undecided voters will likely swing the vote and determine the final outcome. However, there is clearly a discrepancy between the polls and the market mood, as market sentiment continues to lean towards a victory by the Remain camp. This sentiment has boosted the pound, which briefly broke above 1.49 on Thursday and is trading at its highest level in 2016. The Remain camp has warned that a vote to leave the EU would damage the UK economy, while the “Leave” vote has tapped into voter dissatisfaction with Brussels, particularly concerning immigration and over-regulation by the EU. The economic stakes are massive, as the UK economy of GBP 2.9 trillion is the fifth largest in the world and number two in Europe, after Germany. A vote to leave the comfort zone of the EU would be a journey into the unknown, with unpredictable economic and political consequences for both the UK and the European Union. If the Leave camp wins, traders can expect significant volatility in the currency and commodity markets.

As expected, Janet Yellen did not provide any clues about a rate hike in her testimony before Congress this week. She acknowledged that the US economy could face some adversity, saying that “[c]onsiderable uncertainty about the economic outlook remains”. Yellen said that she’s “hopeful that we will see a pickup in growth”, but skeptics might respond that the markets want to see action from the Fed and not just hope. The Fed has clearly been out of sync with the markets, as underscored by the Fed’s statements back in December that it might raise rates in 2016 up to four times. Meanwhile, here we are in June, and there’s no clear indication that the Fed will raise rates at all this year. In her testimony, Yellen said she does not expect the US economy to enter a recession, but if such a scenario did occur, the US would not follow Japan and Europe and adopt negative interest rates. On a more positive note, Yellen said that weak oil prices, low interest rates and stronger wage growth should support consumer spending.

WTI/USD Fundamentals

Thursday (June 23)

• 8:30 US Unemployment Claims. Estimate 271K. Actual 259K
• 9:45 US Flash Manufacturing PMI. Estimate 50.5. Actual 51.4
• 10:00 US New Home Sales. Estimate 561K. Actual 551K
• 10:00 US CB Leading Index. Estimate 0.2%. Actual -0.2%
• 10:30 US Natural Gas Storage. Estimate 59B. Actual 62B

Upcoming Key Events

Friday (June 24)

• 8:30 US Core Durable Goods Orders. Estimate 0.1%

*Key events are in bold

*All release times are EDT

WTI/USD for Thursday, June 23, 2016

WTI/USD June 23 at 11:30 EDT

Open: 49.45 Low: 49.11 High: 50.00 Close: 49.42

WTI/USD Technical

• WTI/USD has shown limited movement in the Thursday session
• 46.49 is providing support
• There is weak resistance at 50.13. This line could be tested in the North American session

Further levels in both directions:

• Below: 46.49, 43.45, 39.32 and 35.25
• Above: 50.13, 53.50 and 56.79

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