Article / 14 June 2016 at 8:24 GMT

From the Floor: Tabloid's Brexit call pounds sterling

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  • UK tabloid The Sun calls for a Brexit vote on June 23
  • GBPUSD slides 110 pips on "highly significant" call — Horchani
  • Cable vols across the board spike to highs — Horchani
  • Flight to yen could make intervention "almost a certainty" — Hardy
  • CHF buying puts Swiss National Bank on alert — Hardy
  • 10-year German bund yield edge ever closer to zero — Boye
  • Gold rally splutters despite Brexit momentum — Hansen
  • Microsoft $26bn swoop for LinkedIn "makes sense" — Garnry
  • Fed summer hike looks completely off the agenda — Boye


By Martin O'Rourke

It's the Sun wot did it

Popular UK tabloid The Sun famously claimed "It's the Sun wot won it" back in 1992 when it came out against red-hot favourites Neil Kinnock's Labour Party on the eve of the ballot and helped propel John Major's Conservatives to the unlikeliest of victories.

The most widely read newspaper in the UK may just have done it again after a front-page headline overnight urging its readership 'Beleave in Britain' and GBPUSD took a 110-pips crash through to the 1.4125 area before finding its feet eventually at the 1.4150 mark.

"This is the first time we have seen a newspaper come out with a specific recommendation on the vote", says Tareck Horchani from Saxo Bank's Singapore hub. "It can be a bit low quality but it's very popular and a lot of people follow it. The fact that it is backing Brexit is highly significant".

GBPUSD was at 1.4148 at 0655 GMT.

Horchani suspects the 1.4150 area will act as resistance around the 100-day moving average with sellers likely to enter the market below that level. But, he adds, FX options markets volatilities are "exploding" across the board.

"We are not even talking about the one-month vols here which are exploding but even the rest of the curve", he says. "The 3 month vols are trading at all-time highs of 18% and the rest of the vols — 6-month and 1-year — are trading highs", he says.

"If we get a Brexit, the EU has no idea how to manage this and it could take up to two years for the UK to leave the Eurozone", he adds.

3-month vols in GBPUSD top 18%


Source: Bloomberg

Flight to yen

The subsequent flight to safe-haven assets has found its biggest move in yen strength forcing USDJPY below 106.0 and putting the frighteners once again on the Nikkei which followed Monday's 3.5% fall with another 1% slide.

"Finance minister Taro Aso was out speaking on the yen and we could see an intervention if we get a brutal extension of this move", says Saxo Bank's head of forex strategy John J Hardy. "Intervention is almost a certainty if we have a very disorderly market around a Brexit vote on June 24".

"Any rumour of anything can set off a move intraday".

The Swiss franc is also a beneficiary of the flight to safety and this could put the Swiss National Bank in a spot at its meeting later this week. "The CHF is absorbing a lot of safe-haven flows but the timing of this meeting is awkward but it is nevertheless an uncomfortable strengthening in the event of a Brexit vote".

Bunds too are also benefitting from the Brexit shadow with buyers still clamouring despite the move towards virtual negative yields on 10-year bunds, reports Michael Boye from Copenhagen's fixed income desk.

"Bunds opened at 165.08 which is very close to breaking the zero percent mark", says Boye. "If we go into negative yields, it is hardly going to change the world but it is nevertheless a historic move if it goes negative". (Editor's note: bund yields have moved into negative territory as we compile this report)

In fact, perhaps about the only asset class not to really take a ride on the Brexit-led wagon was gold which, says Saxo Bank's head of commodities strategy Ole Hansen, settled into a consolidation pattern after an $80/oz rally.

"Gold could not jump on the latest Brexit event", he says. "It should find support at the $1,254/oz area".

Gold was at $1,280/oz at 0655 GMT.

Bunds struck out above the 165.0 mark this morning and raised the prospects of 0% yields

Source: Bloomberg

Resume time

Microsoft's $26bn swoop for professionals social media platform LinkedIn "makes sense", says Saxo Bank's head of equities strategy Peter Garnry as it will give the computing giant "access to very important data".

Garnry admits to having been puzzled by the direction that LinkedIn chose to take as it gravitated towards something like a news site and he thinks Microsoft "could actually get more value from LinkedIn's data".

As for Apple, a 1% fall overnight in the share price confirms Garnry's view that nothing much will come out of the technology giant before the end of the year. "It won't be until 2017 that we really get to see something out of Apple again and sentiment remains weak".

Garnry also predicts Dax's precipitous slide Monday to a two-month low could yet go as far as 9,500 having started off the day at 9,580.

Finally, he spots an opportunity for the nimble trader to exploit a possible trade on China based on whether the MSCI decides Wednesday to incorporate mainland shares into its index.

"This is probably a 50/50 decision but if it happens there will be massive inflows into mainland markets on the back of index trackers alone", says Garnry. "China has carried out a lot of work fixing transparency issues and in the rules and regulations for market makers".

That should cheer the Shanghai Composite Index if it happens after another fall overnight to 2,835.

And finally...

We seemed odds on for a Fed rate hike this summer but as the Federal Open Market Committee gets ready to get out the laptops and dust down the charts, June has been given as a 2% chance for a hike, July is down to 15% and even December is only a 46% chance for a rate move.

"The market is very sceptical of the FOMC now after its embarrassment over the NFP", says Hardy. "It's really not interested".


Could China's mainland shares earn inclusion inside the MSCI index tomorrow? 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.

14 June
Michael Boye Michael Boye
And the break is now official as the BUNDs future powers through to new highs at 165,35 in this second equal to a historic negative 0,01% 10 year German government yield!


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