Brexit: All The Latest News, What Happens Next And How To Trade It

Sterling drops, banking stocks tumble and peripheral EGB and credit spreads widen after the U.K.’s vote to leave the EU; verbal and direct intervention by central banks help currencies off earlier lows. U.K. PM David Cameron has resigned, announcing there needs to be a new prime minister in place by October.

MARKET MOVES: ALL ABOUT FX

  • GBP/USD down ~8%, paring earlier slide of as much as 11%; liquidity returns as uncertainty dissipates with volumes around 50 times a “normal” session for the Asia time zone, traders in Europe say
  • One-week implied volatility in GBP/USD up 2 vols; rose 21 vols to fresh record of 53.16% earlier
  • USD/JPY briefly drops below 100 to a 2 1/2-yr low; CHF more than halves gains vs EUR after SNB intervened to stabilize the currency
  • ZAR, PLN, MXN slide around 5%, leading declines among EM currencies
  • WTI crude falls ~4% to $48.10
  • FTSE 100 down 6%, Euro Stoxx 600 slumps 8.1%
  • Yields on U.K. 10Y gilts drop 30bps to 1.07%
  • Banking stocks RBS, Lloyds, Barclays shares fall more than 29%

WHAT’S THE LATEST?

  • U.K. PM Cameron says will continue in role for three months, says the next PM will decide when to trigger article 50
  • Central banks across the world pledge to take action as needed to avert any breakdown in financial-market liquidity
    • Governor Carney says BOE well-prepared for Brexit, ready provide GBP250b of extra funds; adds central bank won’t hesitate to take additional measures
    • SNB says it “intervened in the foreign exchange market to stabilize the situation and will remain active in that market”
    • BOJ Governor Kuroda and Japan FinMin Taro Aso said central banks of six major developed nations have currency-swap lines at the ready to provide liquidity
  • Central banks expected to ensure stability on Brexit impact, with BOJ expected to act more rapidly than others, UBS economist John Wraith says
  • As first step, possibly there will be some verbal communication in form of “whatever it takes” to reassure the markets; then some reassessment will be required, UniCredit strategist Vasileios Gkionakis says
  • BOJ likely to step in on a dip in USD/JPY below 100
  • S&P says U.K. will be downgraded by at least one notch; says votes in Scotland and Northern Ireland ‘raise many questions’
  • U.K.’s credit ratings would be quickly reviewed, “likely with a negative bias,” Andrew Colquhoun, head of Asia- Pacific Sovereigns at Fitch Ratings said before the vote result
  • EU President Donald Tusk says EU determined to keep unity as 27-member bloc
  • Brexit means U.K. can’t retain advantages of being in EU, French government spokesman Stephane Le Foll says on France2 TV
  • There must be a referendum now in France, National Front party says in posting on Twitter, while Dutch Freedom Party Leader Wilders says “Time for Dutch referendum”
  • JPMorgan executives say may need to change location of some roles, will maintain large presence in U.K.

WHAT HAPPENS NEXT?

  • Govt paper on the process of withdrawing from the EU shows U.K. and union members will have 2 years to negotiate initially; period can be extended if all remaining 27 members agree
  • “The EU procedures for leaving the European Union are clearly spelled out and will be applied. That creates reliability,” German Finance Minister Wolfgang Schaeuble says in e-mailed statement
  • BOE may cut rates by 50bps by end August, JPM analysts including Malcolm Barr write
  • TD Secs pushes back Fed rate rise to June 2017 vs Sept 2016
  • Norges Bank is meeting to discuss Brexit result
  • German lower house, or Bundestag, to hold special session next week to discuss fallout of Brexit vote; PM Renzi to hold meeting with central bank Governor Visco

HOW TO TRADE IT

  • Goldman Sachs expects safe-haven currencies, such as CHF, JPY to outperform and EUR to underperform; European stocks to sell off sharply
  • HSBC says risk-off behavior will dominate markets in near term; JPY, CHF and gold should rally; cuts GBP forecasts
  • Citigroup targets 0.9% on 10Y gilts, say buying 30Y ASW spreads arguably offer best value as BOE QE may also start to be priced
  • Continue to like 10Y bunds as outright long, move target to -0.40% after prior -0.1% goal was met, RBS strategists including Giles Gale write in client note
  • UBS says 10Y Italy-Germany spreads to widen to around 185bps; Spain-Germany to 195bps and Ireland-Germany to above 110bps

Source Bloomberg