Article / 28 June 2016 at 8:53 GMT

From the Floor: Markets calmer but UK politics in chaos

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  • Volumes remain light and action is very choppy – Moltke-Leth
  • Fiscal is seen as the next direction for markets – Hardy
  • Despite recovery it's premature to say 'the storm has passed' 
  • Gold would need some 'bad' news in order to rally further – Hansen
  • Early equity opportunities in airlines, carmakers and banks – Garnry
  • Flight-to-safety weighs more than risk aversion for gilts – Boye
 By Clare MacCarthy

Britain's two largest political parties remain in turmoil five days after voters elected to quit the EU but financial markets have regained some equilibrium with stock prices rising and the pound coming off its 31-year low against the dollar. Illustrating that the underlying tone is still nervous and any gains may be fragile, yields on government bonds are down and US monetary policy expectations have swung 180° – traders now think the Fed's next move will be a rate cut and not a hike.

"It seems like the initial shock of Brexit may be easing but volumes remain light and action is very choppy," reports Christoffer Moltke-Leth from Saxo's Singapore trading desk. And with what's likely to be a tumultuous EU summit taking place in Brussels today it would indeed be premature to declare this storm quelled.

GBPUSD – mind the volatility
 Source: Saxo Bank. Create your own charts with SaxoTraderGO click here to learn more

"We've been down so low that the market is seizing on any piece of news and I think fiscal is seen as the next direction for markets," says John J Hardy, Saxo's head of FX strategy, in reference to a new South Korean stimulus package and hopes that Japan is preparing to launch another massive one of its own.

"Sterling is off its 1.3121 low and has bounced almost two figures," Hardy notes, adding that while there is talk that  the UK might try to wrangle a new deal out of the other EU members and subsequently put that to a second referendum, the likelihood is that this will linger until October. Hardy says that neither the British prime minister nor his chancellor want to be the ones who set Brexit into motion by invoking Article 50 of the Lisbon Treaty (this clause makes departure irreversible). Against this backdrop, the market will likely remain marked by anxiety pending clarification of the entire messy business.

 Source: Bloomberg

Meanwhile, market participants now expect the US Federal Reserve to cut rates – possibly as early as July – instead of hiking them. As evident from the above chart, the probability of a hike has gone way over the time horizon, Hardy points out.

 Source: Bloomberg

In commodities, Saxo's Ole Hansen says that while gold has retraced a tad after its Brexit-inspired rally, the yellow metal would need some "bad" news in order to rally further at this stage. Gold remains fundamentally bullish, he says,  but it's an increasingly crowded trade, especially from hedge funds and CTAs.

In other precious metals, platinum is trading at an historically wide discount to gold, opening the opportunity to sell gold and buy platinum at a near record $338.

European bourses have rebound nicely in first few hours of trading and yesterday's alarmingly steep losses means that opportunities might be found today in airlines, carmakers and banks. Among individual stocks, A.P. Maersk's stock fell over 8% Monday on rumours it had lost the rights to operate an oil field in Qatar that was its biggest revenue spinner. The Danish company's problems, Saxo's Peter Garnry explains, are compounded by a poor outlook for its other main business, container shipping.

Finally, government bonds are holding steady to higher despite another move by a credit rating agency to downgrade UK debt, Michael Boye of Saxo's fixed income trading desk reports. "The yield on the 10-year UK government bond dipped below 1% for the first time despite the credit downgrade, so clearly the flight-to-safety trend weighs more than risk aversion at this time," Boye notes.

 Competition from China's Silk Road project will damage container shipping. Pic: iStock

Clare MacCarthy is deputy editor at

Editor’s note: From the Floor takes advantage of's unique real-time access to Saxo Bank’s various trading desks around the globe to put our community in touch with the developments that matter to their portfolios.

28 June
the link to the call not working again
28 June
Martin O'Rourke Martin O'Rourke
Hi J R. Thanks for alerting us. It is now fixed.


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