Britain will have a new prime minister by the end of the week when Theresa May succeeds David Cameron and takes the keys to No.10 Downing Street.
That Brexit fears receded so quickly was a testament to the healing powers of the promises of more monetary accommodation. Almost every central banker polled from the Bank of England down said they stood ready to inject liquidity and support the market.
But there could be more to the post-Brexit bounce than a celebration of central bank largesse, or even a recognition that Britain leaving the EU wouldn’t materially impact global growth materially, according to Westpac’s New York-based currency strategist Richard Franulovich.
In a note to clients overnight, Franulovich said the reason US non-farm payrolls didn’t derail the stock market rally, nor indeed those in other risk assets like the Aussie dollar was that “the combination of ‘reassuringly decent data’ and pro-growth monetary/fiscal signaling from global policymakers has been the key to steadier risk appetite”.
Franulovich says that markets distracted by Brexit have missed the fact that “the global data flow has been quietly firming for the better part of the last three months”. That has seen Westpac’s global data surprise index hit and hold 4-year highs Franulovich said.
That’s good for investor risk appetite so it’s no surprise the US stock rally continued last night taking the S&P 500 to a new all-time high of 2143.16.
But as Tom Leveroni at Nautilus Research suggested in a note overnight there could be more strength in risk appetite and hence the stock market rally to come.
“Risk appetite typically follows global data in a pro-cyclical fashion,” Franulovich said.
And even if the Fed ups the rhetoric on a possible increase in interest rates, Franulovich believes that even though there have been instances when strong data and repricing of interest rate expectations weigh on risk assets “over the long haul there has been a stronger tendency for risk appetite to firm in the wake of stronger data as the the chart shows” he said.
Add to that the global easing back drop and risk assets like the Aussie dollar and stocks will remain well bid.
“The prospect of easier monetary from the BoE, a likely dovish lean form the ECB when they meet July 21, not to mention the renewed fiscal push in Japan all suggest global risk appetite should remain well supported in coming weeks” Franulovich wrote.