Article / 07 July 2016 at 8:50 GMT

From the Floor: Some relief but Brexit still nags

Your Next Trade
  • Is the strong ISM an outlier or a new trend?
  • Sentiment creeps upwards but Brexit fears still nag
  • Strong NFP would put the Fed at odds with the data – Hardy
  • Banking shares slide has been extraordinary – Garnry
  • Negative yields abound in fixed income – Boye
By Clare MacCarthy

A touch of optimism has crept into Europe this morning. Bourses in the region are mostly higher and bond yields are gently ahead in the wake of a data-fuelled Wall Street rally yesterday. But it's not quite time to relax just yet.

Gold and other safe havens may have shed a smidgeon of their allure but Brexit worries still loom large and explain why our global market call today features words like "extraordinary" and "astounding"...

The surprising data print in question was the US June non-manufacturing index which jumped to 56.6 in June from 52.9 in May. This exceeded expectations of a 53.3 reading and was the fastest monthly expansion rate in the US services sector this year.

"Trying to understand the reaction function of markets after that very strong ISM and it doesn't really fit the narrative where we have bonds being bid up to record low yields amid worries about the global environment post-Brexit", says John J Hardy, head of FX strategy. "In this context, the ISM data is interesting and it'll be even more interesting if we get strong nonfarm payrolls data on Friday because that would put the Fed at odds with the data coming in".

Market expectations on the Fed's monetary policy trajectory have shifted towards easing rather than tightening and there appears to be a broad conviction that it would take a lot to bump the central bank off this path. "There's absolutely no shift in the outlook for the Fed hiking rates in the future and we have something like 12% for December and essentially nothing forever in the forward Fed pricing," Hardy says.

It could be time for the EURGBP pendulum to swing back
 Source: SaxoTraderGO

In FX markets Hardy reports that we're beginning to see a bit more of a two-way trade in GBP pairs in the wake of the massive sterling outflows experienced over the past few days. "One of our favourites for showing the first signs of sterling resistance to further selling is EURGBP and there could be an opportunity for a little tactical shorting here," Hardy says.

Meanwhile, the European banking sector has emerged as a major casualty of the Brexit explosion. "The main theme in Europe right now is 'where banks go, the market goes' and yesterday we saw European bank shares hit their lowest levels since 2009 in a really extraordinary development," reports Peter Ganry, Saxo's head of equity strategy.

Deutsche Bank shares fell to a 25-year low, prompting German finance minister Wolfgang Schaüble to say that he and his officials "were following the situation very closely" (well, he would say that, wouldn't he).

The way out of the banking quagmire, Garnry says, would be for Europe to follow the advice of SocGen chairman who advises that the EU should bend the rules in a similar manner to the US action in response to the financial crisis.

Source: SaxoTraderGO

Finally, the overarching theme in the fixed income arena is the record lows in bond yields where we're punching new landmarks on the government yield heat map, reports Michael Boye of Saxo's fixed income trading desk.

The UK and the US have logged new record low yields both in the 10-year and 30-year durations and Germany has taken out its post-Brexit low of minus 0.20%. And it's not just the big guys either – Denmark, Boye says, has become the latest member of the negative 10-year yield club. Bad news for savers, pension funds and bank earnings....

 A freshly-minted member of the negative yield club. 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.

07 July
This is the second day the morning call replay doesn't work. It gets hung up on the message:"This is a private meeting. Your request to enter has been sent to the host. Please wait for a response."
07 July
Clare MacCarthy Clare MacCarthy
Hi J R, sorry about that, I've alerted the team and it will be fixed asap. Thanks for pointing it out.


The Saxo Bank Group entities each provide execution-only service and access to permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on or as a result of the use of the Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. When trading through your contracting Saxo Bank Group entity will be the counterparty to any trading entered into by you. does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of ourtrading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws. Please read our disclaimers:
- Notification on Non-Independent Invetment Research
- Full disclaimer

Check your inbox for a mail from us to fully activate your profile. No mail? Have us re-send your verification mail