Article / 20 July 2016 at 8:00 GMT

From the Floor: Sterling on the ropes

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  • Asian stocks higher with the exception of Japan due to a stronger yen
  • IMF warns on global market weakness in the wake of the Brexit vote
  • 'Unofficial Fed mouthpiece' Hilsenrath hints at desire to boost hike odds
  • VIX volatility index plunges below 12, Garnry terms tumble 'extreme'

From the Floor
By Michael McKenna

Ahead of the Brexit vote, the great transnational institutions that have come to, if not govern, then certainly guide the post-World War Two order were all out talking apocalypse.

Britain will "almost certainly" be worse off post-Brexit, said the Institute for Fiscal Studies, the National Institute of Economic and Social Research, and the Centre for Economic Performance in a joint statement.

"A dark star, whose name is Wormwood, will fall to the rivers making the water bitter," said another institution whose exact name and acronym we can't recall.

In any sense, the official line was Brexit=bad. But in the wake of the vote, it would appear that markets have been able to sustain the impact and are generally keeping calm and carrying on. Did the UK, financial reporters began to wonder in hushed terms, get away with it?

Not so fast, says the International Monetary Fund.

Briton's decision to leave the European Union, said the IMF in a new report published yesterday, "has thrown a spanner in the works" of the global recovery. Consequently, the IMF has slashed its forecasts for both UK and global growth, unleashing a Colosseum's worth of GBP bears from their cages.

"GBP is now breaking support," says Saxo Bank head of forex strategy John J Hardy. Since the Bank of England's decision to hold interest rates steady last week, Cable has dropped from just shy of 1.35 to overnight lows below 1.30 before retracing to its present levels around 1.3085.


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Source: Saxo Bank 

"The weak sterling trade," concludes Hardy, "is now in play".

Elsewhere in the FX world, the NZD broke its five-day losing streak, but Hardy says that he remains very bearish given the central bank's clear desire for a lower New Zealand dollar. In the USD sphere, we had John Hilsenrath – an "unofficial mouthpiece for the Federal Reserve," says Hardy – saying that the Fed essentially wants markets to be pricing the chances of a rate hike at around 50% before it will move, but the current odds do not provide such a result until March 2017.

"This could mean that we see some hawkish upgrades from [the US central bank] over the next months," says Hardy; "they want to talk chances higher."

Yesterday, you might recall, Saxo Bank head of equities strategy Peter Garnry reported that the 125% gain seen in Nintendo shares following the release of Pokemon Go represented an unjustifiable valuation, leading Garnry to set a short position for activiation at today's Tokyo open.

As it happened, Garnry's call and timing were spot-on and the day's session saw Nintendo shares plunge by as much as 18% before closing down 12%. Walking around looking for animated monsters may be a diverting pastime, and the game may feature a record high average revenue per daily user, but all of these great things do not, it would appear, add up to $7 billion in market capitalisation.

Speaking of strange beasts on screens, one of the odder readings seen today was the plunge in the VIX volatility index, which now sits at 12. "This is extreme," says Garnry, citing the plethora of risks that exist in the second half of 2016.

Finally, the US earnings season continues apace today with releases from Kinder Morgan, American Express, Morgan Stanley, Abbott Laboratories, Intel, and Qualcomm. According to Garnry, 57 firms have now reported and earnings are down 6% year-over-year.

The next key high-level statement this week will come from the European Central Bank tomorrow where traders will be looking for information on its bond-buying programme. At present, says Saxo Bank fixed income trader Michael Boye, the ECB has announced it will be purchasing bonds from Telecom Italia, Lufthansa, and Glencore.

Britons await the impact of the Brexit vote (portrait commissioned by the IMF, the European Commission, and Jean-Claude Juncker). Photo: iStock

Michael McKenna is an editor at

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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