Yields on core European bonds went for a slide yesterday as prices rose in response to the ECB's decision to leave its QE programme unchanged – for now at least. Elsewhere, the USD continues to make gains on its peers.
Article / 17 June 2016 at 8:00 GMT

From the Floor: This is no respite

Your Next Trade
  • Murder of British MP Jo Cox 'scrambles' risk sentiment: Liu
  • Equities rallying on shift in bookmaker's Brexit odds
  • Gold posts 'brutal' reversal as risk-on takes hold: Hansen
  • Core bond yields move higher, EU peripheral spreads widen
From the Floor
By Michael McKenna

As much panic and confusion as there can be around event risks such as the June 23 Brexit referendum, there always remains a degree of relief that it is only money, that it is only rhetoric, that it is only politics. 

The promise, after all, of a democratic order is that it confines the roiling passions that surround its decision-making process to certain institutions and fields.

As satisfying a premise as this is, like all human things it remains imperfect, and yesterday's murder of UK member of parliament Jo Cox brought that shortfall into stark relief when she was shot and stabbed to death on a public road in her constituency of Batley and Spen, West Yorkshire.

The fact that Ms. Cox's brutal death will now reenter the worlds of politics and markets is perhaps one of the more inelegant aspects of our system, but whatever the less-than-entirely-tasteful optics, our society is one in which talk and trade are meant to supercede violence as problem-solving mechanisms. As such, this is perhaps not as grim a development as it may appear at first glance. 

In markets, the broad response to Ms. Cox's killing and the subsequent halting of referendum campaigning today was the return of risk sentiment with Singapore-based Saxo Bank trader Edmund Liu noting that the rollback of Brexit fears seemed to allow other developments to reassert themselves, particularly the Bank of Japan's Thursday inaction which gave the newly risk-infused Nikkei a tailwind that sent it 1% into the green.

The positive sentiment was reflected in bourses across the Asia-Pacific region, adds Liu.

According to Saxo Bank head of forex strategy John J Hardy, Cox's murder has "scambled the market's psychology" leaving the USD, the yen, and the Swiss franc as yesterday's big losers. Hardy adds that the USD came under particular pressure as the apparent diminishment of Brexit anxiety allowed FX traders to place more weight on Wednesday's dovish Federal Open Market Committee statement, thus dropping the greenback lower.

The USDJPY chart reflects this move even as the yen saw some selling action as well:

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Source: Saxo Bank 

Hardy reminds us, however, that investors must stay focused on "extreme intraday volatility".

In stocks, Saxo Bank head of equity strategy Peter Garnry reports that shares are rallying as bookmakers shift their Brexit odds in the wake of Ms. Cox's slaying. In Garnry's view, it is Japanese shares that represent the strongest value-play around the UK referendum, particularly as the odds of a 'Leave' vote – at least so far as bookmaker trends reflect the truth of public sentiment – decline.

One non-Japanese stock Garnry is keen on at the moment is Biogen, the major US pharma firm. According to Garnry, Biogen stock is down 49% from its peak following disappointing phase two trial data for a new multiple sclerosis drug.

In Garnry's view, the phase two issues have not precluded the possibility of the treatment becoming "a hit", and he adds that there are "a lot of key events" for Biogen in the second half of 2016. Garnry will publish his views on this trade in greater detail later today, but notes that he would look to hedge Biogen against the Nasdaq Biotech ETF (IBB:xnas).

One of the assets that has been benefitting most heavily from Brexit fears has been gold, which correspondingly dropped 3% versus USD yesterday (down from a 22-month high) and 4% versus the euro (down from a 38-month high). In Saxo Bank head of commodity strategy Ole Hansen's view, XAUUSD – which is presently trading around $1,280/oz – would need to see a determined break north of $1,300/oz before overall sentiment could be termed bullish again.

Finally, and in line with the broader trend, core bond yields are moving higher following the 10-year German bund yield's flirtation with the negative earlier this week while Eurozone peripheral spreads are widening.

If you look at the data, and the sentiment they reflect, today's session appears to be characterised by a degree of a calm, or risk-on in market terms, that has been absent all week.

Ultimately, however, the sort of calm that is prompted by a political murder is no sort of calm at all, and all of the familiar fears and risks lay waiting for us just outside the blurred penumbra of our grief.

Trade carefully.

The centre of the storm. Photo: iStock 

Michael McKenna is an 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.
17 June
link to replay not working
17 June
Michael S. McKenna Michael S. McKenna
Hi J R,

Thanks for bringing this to our attention. The link has now been fixed.


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