-Markets, pound rise: After taking a pounding over the last two trading sessions, global markets and sterling are recovering somewhat this morning. Overnight, the MSCI Asia Pacific Index was little changed, having traded 1.2 percent lower earlier in the session. Japan’s Topix index closed 0.1 percent lower with optimism over further stimulus increasing following a report in the Nikkei newspaper that the chairman of Prime Minister Abe’s party proposed a 20 trillion yen package. In Europe, the Stoxx 600 Index had rallied 2.5 percent by 5:40 a.m. ET while the FTSE 100 was 2.3 percent higher. The pound also rose, gaining 1 percent to trade at $1.3350 at 6:00 a.m. ET as the record selloff following the U.K. referendum abates. S&P 500 futures were 0.7 percent higher.
-Brexit fallout: Away from today’s market bounce, the fallout from the Brexit referendum continues. U.K. Prime Minister David Cameron, who has already announced his intention to resign, is due to attend a dinner with his fellow EU leaders this evening with questions over the timing of the invoking of Article 50 of the Lisbon Treaty remaining unanswered. This morning, in a speech to the German parliament, Chancellor Angela Merkel warned that there could be no «cherry-picking» by the U.K. in negotiations over the country’s future relationship with the EU. Ratings agencies have also responded to the vote, with both S&P Global Ratings and Fitch Ratings downgrading the U.K. yesterday.
-Draghi calls for coordination: European Central Bank President Mario Draghi has called for greater alignment of policies to address the root causes of the challenges facing the world’s economies in a speech this morning that made no mention of the U.K. vote. At his introduction to the annual ECB economic forum in Portugal yesterday he said that «sadness» best described feelings over the referendum result. Federal Reserve Chair Janet Yellen, who was scheduled to attend the forum, pulled out yesterday without explanation.
-China: The Shanghai Stock Exchange is no longer top-dog in Chinese equities as Shenzhen’s Small and Medium Enterprise Board is now leading it on turnover. Worryingly, the change of fortune has been mostly driven by a huge drop in volumes on the Shanghai exchange, rather than any massive increase in Shenzhen turnover. For the moment, Chinese authorities are probably more concerned about the unraveling of their yuan policy in the aftermath of the Brexit vote, with the currency slumping 1.2 percent to a five-year low versus the dollar and rallying 2.4 percent against the euro since last week’s vote. Analysts at Goldman Sachs Group Inc., meanwhile, are looking at the domestic bond market for clues as to the strength of the Chinese economy.
-Can Wall Street breathe again after the Brexit rout? After two days of brutal losses triggered by the U.K.’s vote to leave the European Union, European markets opened higher Tuesday. London’s FTSE 100 is trading around 2% higher, but still 3.6% down on Thursday’s close. U.S. stock futures are also firming, suggesting markets could open about 1% higher. But analysts are warning not to be too cheerful about the modest gains. «Markets are bouncing, and can bounce further but the clouds on the horizon are dark, and they’re real,» said Kit Juckes, strategist at Societe General. Standard & Poor’s downgraded the U.K. by two notches to AA on Monday, stripping the economy of its one remaining perfect triple A rating. Fitch also cut its rating by a notch to AA. The pound is trading 0.8% higher against the dollar early on Tuesday, at $1.33. That’s still 11% off the peak of $1.50 it hit just before the Brexit vote was declared. «Hardly anything to shout about given the extent of recent moves,» said Simon Smith, chief economist at FXPro. There’s still huge uncertainty about how Brexit will play out for the U.K. and the knock-on effect for Europe. British Prime Minister David Cameron, who resigned Friday but is staying on as caretaker leader over the summer, is heading to Brussels Tuesday to face the other 27 EU leaders for the first time since the referendum. Cameron has said he won’t trigger exit negotiations — leaving that decision to his successor who is expected to be in place by the start of September. But some EU leaders want the U.K. to move faster, and have made clear that informal talks won’t happen until it has started the official process. «We cannot start some sort of informal talks without having received the notice from Great Britain. This is very clear to me,» German Chancellor Angela Merkel told reporters on Monday.
-Earnings: Investors may also be looking elsewhere for inspiration on Tuesday. Carnival (CCL) is reporting earnings before the opening bell. Analysts are hoping the cruise operator will post strong results, capitalizing on the lower cost of fuel. Shares in Carnival climbed 1.6% premarket. Nike (NKE) will report earnings after the close.
-Market recap: Earlier, Asian markets struggled to shrug off the Brexit gloom and ended the session flat, Japan’s Nikkei closed 0.1% higher, while Hong Kong’s Hang Seng was 0.3% down. U.S. oil futures are trading 2% higher at per barrel. The Dow Jones industrial average ended Monday down 1.5%, while the S&P 500 sunk 1.8% and the Nasdaq dropped 2.4%.