Article / 15 June 2016 at 8:27 GMT

From the Floor: New Brexit poll pulls yields up for air

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  • Fresh Brexit poll indicates slight lead for Remain camp
  • Bund yields "barely" back above 0% after 'historic' shift — Boye
  • Reported ECB pledges to 'backstop financial markets' helps sterling — Hardy
  • EURUSD downside bias in place but 'locked into range' until June 23 — Hardy
  • Oil slides for fifth day in a row but without much 'conviction' — Hansen
  • Gold rising as XAUGBP hits three-year high — Hansen
  • Twitter has fundamentals in place to 'go higher' — Garnry
  • Short Coca-Cola case gains momentum on 'deteriorating fundamentals' — Garnry


By Martin O'Rourke

And breathe

That Sun newspaper headline that dominated From the Floor Tuesday was enough to give the 10-year German bund yield that final historical push into negative territory, but a new poll published in the same tabloid today has swung momentum back towards the Remain camp and helped pull the 10-year bund yield back above zero percent.

"It is barely above zero percent", reports Michael Boye from the fixed income desk at Saxo Bank's Copenhagen headquarters. "It is likely that this is going to move in synch with Brexit polls over the next week or so".

The 10-year yield fell to as low as minus 0.004% Tuesday.

The European Central Bank has also pledged to "backstop financial markets" in the event of a Brexit, according to Reuters, and the "narrow edge for Remain in The Sun newspaper is helping to keep the suspense", adds Saxo Bank's head of forex strategy John J Hardy.

Boye says the 10-year bund has "been in quite a steady decline for a while" tracing back some 20 years, but the move into negative yields was also propelled by the fallout that still plagues markets from Lehman's collapse in 2008.

"It really shows the state of the financial system as a whole [which is] quite remarkable after eight years of the global financial crisis", says Boye. "We continue to suffer the side effects of the extremely easy monetary policies in place and it is not likely to materially reverse".

Boye also points to a dangerous illiquidity created by a low inventory regime among dealers. "Dramatic changes in liquidity can come on any sentiment change", says Boye. "All it takes is one poll and liquidity dries out extremely quickly in these markets when volatility is high".

"I guess this is the 'new normal' in bond markets", he adds.

Lessons in history and the impact of the global financial crisis in 2008

Frayed nerves

GBPUSD came close to breaking through 1.4100 overnight hitting 1.4115 at one point but The Sun poll helped steady sterling bulls and calm nerves.

"Sterling calmed after the recent spike", said Hardy. GBPUSD was at 1.4141 at 0655 GMT.

But gold bulls will have noted that sterling's gradual appreciation as we head into the referendum final lap has helped propel XAUGBP to three-year highs and could spike higher, says Saxo Bank's head of commodities strategy Ole Hansen, should a vote in favour of leaving the European Union next week wins the day.

The risk is of course two-way, says Hansen, and a 2-4% correction could be in line if the Remain camp emerges victorious.

XAUUSD meanwhile is 1.4% from a year high and continues to look towards the $1,300/oz area as some short-term dollar weakness helps to keep the precious metal frothing over.

Gold was at $1,285/oz at 0655 GMT.

Fed meeting

Hardy says that while there is a chance that today's Federal Open Market Committee meeting might shift the dial on dollar, he's not expecting too much, given the dramatic context backdrop to global financial markets.

"EURUSD is pushing on the downside but not following through", he says. "We need to see what happens post the FOMC but everything remains locked into a range until we get to the other side of the Brexit referendum".

EURUSD is locked in range and unlikely to break out before June 23

Source: SaxoTraderGO

Oil's weakness in the last few sessions is also playing into risk-off market sentiment after global benchmarks Brent and WTI suffered their fifth consecutive falling day.

"Oil is drifting lower but not really with all that much conviction", says Hansen. "The reasons are clear: We have dollar's general strength, inventories up on the API with the more important EIA report to follow this evening and Iran reportedly having doubled its crude exports since sanctions were lifted in February".

"There is no doubt now that we have broken the uptrend in WTI", he says and picks out $47.35/barrel and $46.35/b as the next levels to be aware of on the US benchmark.

Brent crude was at $49.24/b at 0655 GMT. WTI was at $47.94/b.

Standalone Twitter

Speculation may be growing that social media site Twitter could be the subject of a swoop from a bigger rival this year, but the removal of Microsoft from the equation after its $26 billion swoop for LinkedIn limits those with the necessary funding, and the fundamentals mark it out as an excellent standalone, says Saxo Bank's head of equities strategy at Saxo Bank, Peter Garnry.

"We're bullish on Twitter and we think that investors who are shorting Twitter have got it wrong", ´he says. "It has improved dramatically over the last six quarters and we think that Twitter is poised to go higher".

Twitter's six quarters of consecutive cash flow growth

Source: Saxo Bank

Cash-flow generation or the lack of it is precisely one of the factors that has Garnry shying away from soft-drinks maker Coca-Cola, a position he has been pushing for some time.

"Cash-flow is declining because of its deteriorating fundamentals", he says. "It is at its highest valuation since 2003 and it is definitely a shorting candidate".

Elsewhere, the advice on equities in general given the Brexit context is simple: "Sell on any strength", says the Saxo equities chief.

And finally...

China's hopes for entry into the MSCI basket of indices were dashed overnight and while that might have been expected to stymie the Shanghai Composite Index, the wild child of global stock markets decided to go its own way as usual for a 1.58% on-day rise to 2,887.21.

Proof maybe that savvy Chinese investors had already priced in a rejection or that the index continues to behave in a manner that defies all logic? Take your pick!


The latest Brexit poll swung narrowly in favour of the Remain camp. Photo: iStock

Martin O'Rourke is managing editor at Saxo Bank

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.

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