Brexit: GBP weighs as 'leave' camp gains momentum
- Brexit has forced investors to rebalance portfolios to compensate for GBP
- Cross GBP volatilities show these are also being highly bid
- A drop in the 10 year gilt of 6.6bps takes it to an all-time low of 1.14%
By Saxo APAC Sales Trading
Overnight there has been another poll favouring the Brexit, a confirmed break of the 100 Day Moving Average and GBPUSD continues to drop fast almost reaching the strong support at 1.4000.
Talking to few people of the market, the sentiment seems to be that "real money" investors now feel obliged to sell GBP to hedge their portfolio even though they have no strong views on the Brexit vote. Volatilities are expensive, spot is low but it can always be much lower on a "Leave" win.
- Volatility: These remain well bid with 1M trading at 29. The 1 day vol 23/24 June is pricing 135% (equivalent to 800 pips break-even for the straddle). The rest of the volatility curve is also printing new highs. The cross GBP volatilities are also very bid. The main flows in the market are market makers covering positions.
- UK Rates: There has been a big drop in the gilt of 6.6 basis points to the all-time low of 1.14%. The volatility on rates is also exploding higher.
- Equities: The FTSE 100 has lost £100 billion in four days and fell through the 6,000 level after a 2% drop yesterday. Mining stocks were among the biggest casualties as copper prices fell. Anglo American slipped 5.7% to 599.5p, BHP Billiton lost 4.1% to 789.7p, Antofagasta was 5.3% lower at 394.5p and Glencore surrendered 3.6% to 128.2p.
Research and comments: Banks took £2.46 billion ($3.5 billion) in the first of three extra liquidity operations the Bank of England is holding this month as it looks to shore up funding as the UK considers its future in the European Union.
-- Edited by Adam Courtenay
Saxo Research on Brexit: Go to our special Brexit website for trade strategies, comments and research