Steen Jakobsen
The Bank of Japan has abandoned quantitative easing and the European Central Bank may taper its bond-buying programme, so what is the role of central banks in 2017, asks Saxo Bank’s chief economist Steen Jakobsen.
Article / 13 June 2016 at 7:42 GMT

Macro Digest: Risk sentiment takes a dive as Brexit fears mount

Chief Economist & CIO / Saxo Bank
  • Brexit momentum presently with 'Leave' campaign2
  • Cable volatility trading at substantial premium versus norm
  • There now exists negative risk transfer from Brexit into equities
  • Expect a 25 bps rate cut if 'Leave' wins on June 23
  • GBPUSD 'going to 1.2000 with or without Brexit '
  • GBP yield has made an all-time low

The fortunes of the UK's 'Brexiteers' are on the rise while those of sterling 
traders – longs, at least – are fading quickly. Photo: iStock

By Steen Jakobsen

Apprehension surrounding the Brexit vote on June 23 is now spilling over into risk overall. The trend is clear in the polls...

There is presently zero liquidity in the GBPUSD option market; GBPUSD one-month risk reversal is at minus 800 basis points!

This is major warning signal for risk; the norm, as can be seen, is plus minus one.

Risk reversal

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Source: Bloomberg 

All tenors (expiries) into the June 23 Brexit vote are well bid:

  • two-week 36/41
  • one-month minus 12 months = fair value = is trading at more than twice the norm 
FX Options
Source: Bloomberg 

Looking at spot levels:

GBPUSD support comes in at 1.4068, which is a major sell level.


Source: Bloomberg 

Furthermore, the Brexit risks are now spilling into equities. Here is the one-month risk reversal in GBPUSD versus DAX futures in June:

Risk reversal
Source: Bloomberg 

GBP long-term yields have hit an all-time low:

GBP yields

Finally, leading economics journalist Ambrose Evans-Pritchard has decided to vote 'Leave':

Ambrose Evans-Pritchard
 — Edited by Michael McKenna

Steen Jakobsen is chief economist and CIO at Saxo Bank


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