Article / 07 July 2016 at 8:50 GMT

From the Floor: Some relief but Brexit still nags

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  • 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.

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."
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.
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