The Ultimate Visual Guide To Brexit

This coming Thursday, 23 June 2016, the United Kingdom will vote on a historical referendum deciding on the status of its European Union (EU) membership. For the last 2 years since 2014, the UK parliament, led by acting Prime Minister David Cameron have promised a public referendum on Britian's EU membership. Britain's relationship with Europe has always been one of contention, and many have long been awaiting this once in a generational lifetime opportunity to voice their opinions through the democracy of a vote.

The global financial markets have also been eying this key event risk for some time, and since events have heated up recently as we enter the final week before the ballots are cast, there has never been a more important 4 days for English markets (that's including the pound sterling, GBP) since the "Black Wednesday" of 1992, the day the Bank of England was broken by the markets.

We plan to cover the final few days leading up to the so called "Brexit" vote, or short for "Britian-Exit". Like how we covered the also historical Greek crisis exactly a year ago in June 2015 in a 3-part series (Part I, Part II, Part III), we want to provide a comprehensive anchor point for our readers.

This time, we will be incorporating full visuals into our updates, opinions, and analysis. As news and events are expected to develop very quickly, more current updates will first be published on our official Facebook Page, before being added to this catalogue. As such, we recommend you to follow us on our social media accounts to get the latest updates in a timely fashion.

We start our timeline on 6 June at the end of this catalogue, and chronologically progress through time with the latest updates, news, and analysis right at top of the following section. We hope you enjoy it!

Post Brexit Analysis & Commentary

Now that the unthinkable has happened, and the UK has spoiled the European party, it's time to post one last update on this piece documenting what the world really believes had and will happen with regards to the financial markets. Like us, many market participants are still digesting all that happened in the past 36 hours. It's not an easy task because of the scale of market movements.

Brexit isn't an isolated event. It will have huge ripple effects all across Europe, and likely cause a seismic shock to the global economy for months to come. Coming to terms with this universe of issues will take time.

  "Besides European financials (which have seen their worst 2 days in history), U.S. banks are also reeling from Brexit as they seem to be repeating what is now known as the convergence trade: The 2s10s spread on treasuries has always been the correct metric to watch for bank stock performance, and for the last 2 times (see black boxes), banks have always caught down to the reality painted by the yield curve. We seem to be in another repeat this time as bank stocks breakdown after Brexit.    The combination of risk aversion (widely known), and the lesser talks about repercussions Brexit had on the Fed Funds market (Fed rate hike odds have crashed for the remaining of this year, with a higher implied chance of a rate cut than a hike) has led to weakness amongst financials as they will be the most affected by a Brexit aftershock.    Macro wise, the USD has seen some incredible strength over the last 2 days; not because the market favors the greenback over other assets, but because other assets (risk, FX) have been sold very hard that USD has no choice to become the intermediary asset... Markets have no appetite to trade USD on plunging Fed rate hike odds, the focus is completely on Brexit and the events that will unfold next."    Business Of Finance on Facebook, 28 June 2016

"Besides European financials (which have seen their worst 2 days in history), U.S. banks are also reeling from Brexit as they seem to be repeating what is now known as the convergence trade: The 2s10s spread on treasuries has always been the correct metric to watch for bank stock performance, and for the last 2 times (see black boxes), banks have always caught down to the reality painted by the yield curve. We seem to be in another repeat this time as bank stocks breakdown after Brexit.

The combination of risk aversion (widely known), and the lesser talks about repercussions Brexit had on the Fed Funds market (Fed rate hike odds have crashed for the remaining of this year, with a higher implied chance of a rate cut than a hike) has led to weakness amongst financials as they will be the most affected by a Brexit aftershock.

Macro wise, the USD has seen some incredible strength over the last 2 days; not because the market favors the greenback over other assets, but because other assets (risk, FX) have been sold very hard that USD has no choice to become the intermediary asset... Markets have no appetite to trade USD on plunging Fed rate hike odds, the focus is completely on Brexit and the events that will unfold next."

Business Of Finance on Facebook, 28 June 2016

S&P downgrades UK's credit rating

Well, that didn't take long. As reported, UK CDS spreads have widened (higher default risk) post Brexit even as gilt yields plunge to record lows on bid for safety. The economic and financial repercussions of leaving the EU cannot be undermined; and many have earned about the consequences of a Brexit. It is time for the UK to face the music, and sober up to reality. 

From the S&P Credit Rating Update publication:

Ratings On The United Kingdom Lowered To 'AA' On Brexit Vote; Outlook Remains Negative On Continued Uncertainty

OVERVIEW

  • In the nationwide referendum on the U.K.’s membership of the European Union (EU), the majority of the electorate voted to leave the EU. In our opinion, this outcome is a seminal event, and will lead to a less predictable, stable, and effective policy framework in the U.K. We have reassessed our view of the U.K.'s institutional assessment and now no longer consider it a strength in our assessment of the rating.
  • The downgrade also reflects the risks of a marked deterioration of external financing conditions in light of the U.K.’s extremely elevated level of gross external financing requirements.
  • The vote for “remain” in Scotland and Northern Ireland also creates wider constitutional issues for the country as a whole.
  • Consequently, we are lowering our long-term sovereign credit ratings on the U.K. by two notches to 'AA' from 'AAA'.
  • The negative outlook reflects the risk to economic prospects, fiscal and external performance, and the role of sterling as a reserve currency, as well as risks to the constitutional and economic integrity of the U.K. if there is another referendum on Scottish independence.

RATING ACTION

On June 27, 2016, S&P Global Ratings lowered its unsolicited long-term foreign and local currency sovereign credit ratings on the United Kingdom to 'AA' from 'AAA'. The outlook on the long-term rating is negative. We affirmed the  unsolicited short-term foreign and local currency sovereign credit ratings on  the U.K. at 'A-1+'.

We also lowered to 'AA' from 'AAA' our long-term issuer credit rating on the  Bank of England (BoE) and the ratings on the debt programs of Network Rail  Infrastructure Finance PLC. We affirmed the short-term ratings on the BoE and  Network Rail Infrastructure Finance debt programs at 'A-1+'. The outlook on the long-term rating on the BoE is negative.

As a "sovereign rating" (as defined in EU CRA Regulation 1060/2009 "EU CRA Regulation"), the ratings on the United Kingdom, are subject to certain publication restrictions set out in Art 8a of the EU CRA Regulation, includingpublication in accordance with a pre-established calendar (see "Calendar Of 2016 EMEA Sovereign, Regional, And Local GovernmentRating Publication Dates," published Dec. 22, 2015, on RatingsDirect). Under the EU CRA Regulation, deviations from the announced calendar are allowed only in limited circumstances and must be accompanied by a detailed explanation of the reasonsfor the deviation. In this case, the reason for the deviation is the U.K.'s referendum vote to leave the EU. The next scheduled rating publication on United Kingdom will be on Oct. 28, 2016.

RATIONALE

The downgrade reflects our view that the “leave” result in the U.K.’s referendum on the country’s EU membership ("Brexit") will weaken the predictability, stability, and effectiveness of policymaking in the U.K. and affect its economy, GDP growth, and fiscal and external balances. We have revised our view of the U.K.'s institutional assessment and we no longer consider it to be a strength in our assessment of the U.K.'s key rating factors. The downgrade also reflects what we consider enhanced risks of a marked deterioration of external financing conditions in light of the U.K.’s extremely elevated level of gross external financing requirements (as a share of current account receipts and usable reserves). The Brexit result could lead to a deterioration of the U.K.’s economic performance, including its large financial services sector, which is a major contributor to employment and  public receipts. The result could also trigger a constitutional crisis if it  leads to a second referendum on Scottish independence from the U.K.

We believe that the lack of clarity on these key issues will hurt confidence, investment, GDP growth, and public finances in the U.K., and put at risk  important external financing sources vital to the financing of the U.K.’s  large current account deficits (in absolute terms, the second-largest globally behind the U.S.). This includes the wholesale financing of the U.K.’s commercial banks, about half of which is denominated in foreign currency.

Brexit could also, over time, diminish sterling's role as a global reserve  currency. Uncertainty surrounding possibly long-lasting negotiations around  what form the U.K.’s new relationship with the EU will look like will also pose risks, possibly leading to delays on capital expenditure in an economy  that already stands out for its low investment/GDP ratio.

Detailed negotiations are set to begin, with a great deal of uncertainty around what shape the U.K.'s exit will take and when Article 50 of the Lisbon  Treaty will be triggered. While two years may suffice to negotiate a departure from the EU, it could in our view take much longer to negotiate a successor  treaty that will have to be approved by all 27 national parliaments and the European parliament and could face referendums in one or more member states. While some believe the U.K. government can arrive at a beneficial arrangement with the EU, others take the view that the remaining EU members will have no incentive to accommodate the U.K. so as to deter other potential departures and contain the rise of their own national eurosceptic movements.

In particular, it is not clear if the EU--the destination of 44% of the U.K.'s exports--will permit the U.K. access to the EU’s common market on existing  (tariff-free) terms, or impose tariffs on U.K. products. Future arrangements  regarding the export of services, including by the U.K.’s important financial  services industry, are even more uncertain, in our view. Given that high immigration was a major motivating issue for Brexit voters, it is also  uncertain whether the U.K. would agree to a trade deal that requires the country to accept the free movement of labor from the EU. The negotiation process is therefore fraught with potential challenges and vetoes, making the outcome unpredictable.

We take the view that the deep divisions both within the ruling Conservative Party and society as a whole over the European question may not heal quickly and may hamper government stability and complicate policymaking on economic and other matters. In addition, we believe that Brexit makes it likely that the Scottish National Party will demand another referendum on Scottish independence as the Scottish population was overwhelmingly in favor of remaining within the EU. This would have consequences for the constitutional and economic integrity of the U.K. There may be also be similar constitutional issues around Northern Ireland.

These multiple and significant challenges will likely be very demanding and we expect them to take precedence over macroeconomic goals, such as maintaining growth, consolidating public finances, and the importance of finding a solution to worsening supply bottlenecks in the U.K. economy. Lack of clarity while negotiations ensue will also significantly deter private investment.

The U.K. benefits from its flexible open economy and, in our view, prospered as an EU member. We believe that the U.K. economy was able to attract higher inflows of low-cost capital and skilled labor than it would have without the preferential access that EU membership delivers. We consider that significant net immigration into the U.K. over the past decade helped its economic performance. EU membership also helped enhance London's position as a global financial center.

We believe that the U.K.'s EU membership, alongside London's importance as a global financial center, bolstered sterling as a reserve currency. When we assess the U.K.'s external picture, we incorporate our view that the U.K. benefits from its reserve currency status. This leads us to make a supportive external assessment, despite the U.K.'s very large external position in terms of external liabilities and external debt, on both a net and gross basis. Under our methodology, were sterling's share of allocated global central bank foreign currency reserve holdings to decline below 3%, we would no longer classify it as a reserve currency, and this would negatively affect our external assessment. Sterling's share was 4.9% in the fourth quarter of 2015, according to International Monetary Fund data.

Furthermore, since having joined the European Community 43 years ago, the U.K. has attracted substantial foreign direct investment (FDI), which has helped to solidify its role as a global financial center. High FDI inflows increased the capital stock in an economy that is notable for its low investment levels; FDI was an estimated 18% of GDP in 2015. This underscores the high importance of FDI inflows for the growth prospects of the U.K. economy.

About two-thirds of all FDI into the U.K. represents investment in the financial services sector. Most investment into the financial services sector is channeled into London. The U.K. financial system, measured by total assets, stands at about 4.5x GDP and foreign banks make up about half of U.K. banking assets on a residency basis. Foreign branches account for about 30% of total U.K. resident banking assets. Brexit could lead financial firms, especially foreign ones, to favor other destinations when making investment decisions.

Net FDI is also a major source of financing for the U.K.'s current account deficit, which has persisted without interruption since 1984. The current account deficit exceeded 5% of GDP in both 2014 and 2015. We believe the “leave” vote will put pressure on sterling and could improve net exports, in particular by weakening imports as growth decelerates, leading to a faster narrowing of the current account than if the U.K. had stayed in the EU. For this reason, we forecast the current account deficit to average 3.4% in 2016-2019 compared to our April forecast of 4.5%, though we would add that past episodes of sterling weakness largely did not necessarily improve the U.K.’s merchandise deficit, which last year was 6.7% of GDP. The U.K.’s services sector ran a net surplus of almost 5% of GDP last year, but to the extent that financial services may face more difficult access to EU markets (subject to the outcome of negotiations with the EU), that position may also worsen.

Nevertheless, we see the U.K.'s high external deficits as a vulnerability, and we view an EU departure as a risk to financing sources. The U.K.’s gross external financing needs (as a share of current account receipts and usable official foreign exchange reserves) is the highest among all 131 sovereigns rated by S&P Global Ratings. At over 800%, this ratio stands at over twice the level of the G7 runners-up (U.S. and France are under 320%).

The U.K. economy had been recovering robustly since 2007. Over the past two years, it has grown faster than any economy in the G7, and faster than almost all the large European economies, including Germany. However, given the uncertainty and fall in investment tied to the “leave” vote, we are forecasting a significant slowdown in 2016-2019, with GDP growth averaging 1.1% per year (compared to our April forecast of 2.1% per year). A fall in investment will affect growth, job creation, private sector wage growth, and consumer spending.

At 84% of GDP (2016 estimate), the U.K.'s net general government debt ratio remains high. Since the 2008 financial shock, fiscal consolidation has been substantial--primarily in the form of cuts to general government expenditure. Fiscal consolidation will become harder to achieve given the slower growth, as well as in the face of rising risks of discretionary fiscal easing to arrest the economic slowdown. In our opinion, the decision to leave the EU raises further the fiscal challenges of meeting already ambitious targets, as weaker consumption and investment, possibly via a correction in the U.K.’s highly valued housing market, would take a toll on tax receipts. Over the medium term, a reduction in employment and earnings in the financial services sector could further undermine public finances. Since Brexit, plans to start the sale of shares in government-owned banks may have to be postponed owing to economic uncertainty.

We view the U.K.'s monetary and exchange rate flexibility as a key credit strength. During the financial crisis, it enabled wages and prices to adjust rapidly, relative to trading partners, we expect it to provide as rapid an adjustment again. Exchange rate adjustments can help to broadly maintain competitiveness. The U.K. authorities have drawn on the flexibility afforded by its reserve currency, and this has benefited GDP growth and public debt sustainability, in our view. As mentioned earlier, if the U.K. were to lose its reserve currency status, we would view this as a significant negative.

Despite the uncertainty around Brexit, we believe that the U.K. will continue to benefit from its large, diversified, and open economy, which exhibits high labor- and product-market flexibility, and enjoys credible monetary policy. Additionally, the U.K. benefits from deep capital markets and a globally competitive financial sector.

OUTLOOK

The negative outlook reflects the multiple risks emanating from the decision to leave the EU, exacerbated by what we consider to be reduced capacity to respond to those risks given what we view as the U.K.’s weaker institutional capacity for effective, predictable, and stable policymaking.

We could lower the rating should we conclude that sterling will lose its status as a leading world reserve currency; that public finances will deteriorate; or that GDP per capita will weaken markedly beyond our current expectations (see "GDP Per Capita Thresholds For Sovereign Rating Criteria," published on Dec. 21, 2015). In addition, we could lower the rating if another referendum on Scottish independence takes place, or other significant constitutional issues arise and create further institutional, financial, and economic uncertainty.

We would revise the outlook to stable if none of the aforementioned negative developments occur.

  ""Contagion" is a word most Europeans have forgotten ever since the 2012 European Sovereign Debt Crisis that almost threatened to end the euro project. It was a dark time for the EU and Eurozone back then. However, if we judged the severity of a crisis by the size of corresponding market moves, last Friday's Brexit absolutely blows 2012 and even Lehman (2008) out of the water.    European banks just recorded their largest 2-day loss on record, dropping -23.13% since Thursday's close, or 8% more than the last biggest drawdown. If you're a trader, you'll appreciate just how enormous this move is, and how intense the selling really was for a matter as diversified and broad as the EuroStoxx 600 to collapse this much so quickly! Even if we assumed European banks were flat and not already in a bear market, it would have fallen into one 6 hours ago when trading started for Monday.    Also, when we price European financial stocks in USD instead of in EUR, they will be at all time lows, low ever than 2008's depths.    Contagion is real. So far, The Netherlands and France have floated talks on holding their own EU referendums, and we suspect if this trend were allowed to keep up, we'll be seeing the other member states the likes of Italy, Spain, Cyprus, Greece, and Portugal start to plan their own exits from the bloc...    Markets might already be starting to discount for this risk, although it may seem trivial for now."    Business Of Finance on Facebook, 28 June 2016

""Contagion" is a word most Europeans have forgotten ever since the 2012 European Sovereign Debt Crisis that almost threatened to end the euro project. It was a dark time for the EU and Eurozone back then. However, if we judged the severity of a crisis by the size of corresponding market moves, last Friday's Brexit absolutely blows 2012 and even Lehman (2008) out of the water.

European banks just recorded their largest 2-day loss on record, dropping -23.13% since Thursday's close, or 8% more than the last biggest drawdown. If you're a trader, you'll appreciate just how enormous this move is, and how intense the selling really was for a matter as diversified and broad as the EuroStoxx 600 to collapse this much so quickly! Even if we assumed European banks were flat and not already in a bear market, it would have fallen into one 6 hours ago when trading started for Monday.

Also, when we price European financial stocks in USD instead of in EUR, they will be at all time lows, low ever than 2008's depths.

Contagion is real. So far, The Netherlands and France have floated talks on holding their own EU referendums, and we suspect if this trend were allowed to keep up, we'll be seeing the other member states the likes of Italy, Spain, Cyprus, Greece, and Portugal start to plan their own exits from the bloc...

Markets might already be starting to discount for this risk, although it may seem trivial for now."

Business Of Finance on Facebook, 28 June 2016

  "Because of the historic and quantitative significance of Brexit, its impact on the world's financial markets hitherto, and the scale of surprises, we thought it would be more than appropriate to piece together some illustrations to give you a sense of just how mega this event was. Like we said earlier last week, Brexit will be staying in the history books.    Courtesy of BofAML's cross asset research team, we have some telling facts of Brexit that will our things into perspective. Post Britain’s vote to Leave the EU, the EuroStoxx 50 experienced its largest ever 1-day loss in history. Cable (GBPUSD) was slammed to 31-year lows. On Friday various other markets markets saw volatile moves that put 2008 in the dust. The historic collapse in GBPUSD was not only far greater than any such move seen in history, but was an unprecedented 12 standard deviations in magnitude. Statically, this almost never happens on a normal distribution. But it did.    Other crosses such as EURJPY, EURUSD, bonds such as 10-year bunds experienced daily moves that were more significant than on any day in 2008 (Lehman).    As BofAML puts it pointy, "gaps in risk perception that were evident even as recently as last week (VSTOXX-VIX spread was as wide as 20pts), may narrow further as spillover risk to global assets remains high." The bank's Critical Stress Indicator (via GFSITM index) was triggered on 13 June, "suggesting cross asset stresses had risen by enough to lead to widespread contagion, absent policy intervention."    So in essence, some markets are fairly priced (most currencies) but will probably see more selling/buying going forward, but other assets are wrongly priced (volatility, stocks, and perhaps credit). Assets that are wrongly priced should begin reverting to where the gravity currently is: Risk and FX.    ***    BofAML has much more details:    "While derivatives markets like Sterling options clearly anticipated event risk around the referendum as early as April, there were record gaps in risk perception across regions and asset classes even days before the vote. Bank of America believes that gaps will further narrow as markets outside Europe realize the risks Brexit creates for global markets. For instance, at the time of writing the VSTOXX (V2X)-VIX spread, which traded as wide as 20 pts in the last week, decreased to ~13pts (EU close) as US equity volatility catches up with that in Europe.     Sterling had a 12 sigma move (vs history) on 24-Jun: GBPUSD, risk perception on which has been among the most stretched metrics across the GFSI leading up to EU referendum, reacted the most across the assets in Chart 2. This highlights just how important it is to pay attention to metrics close to the source of stress.    GBPUSD, EURJPY, EURUSD & 10yr Bunds were more shocked than even ‘08: Price action suggests FX & bond markets were more shocked by Brexit than they were at any time in 2008.    Scope of further contagion remains high: The GFSI’s Critical Stress Signal triggered on 13-Jun, as FX & equity stresses rose sharply. The markets’ reaction to Brexit has also witnessed a narrowing of some gaps in risk perception like the V2XVIX spread; indeed the VIX was >2x more surprised than the V2X today. Given the highly significant moves in cross asset stress and the relative underperformance of V2X (see later) versus EU equities, this metric will be a key barometer for monitoring contagion.     The V2X lagged in the largest 1-d SX5E drop; may rise to ~46 if sell-off persists:    The V2X underperformed the (~8.5%) fall in the SX5E today – rising by ~3.5 pts, while a historical relationship would suggest an increase of ~10 pts (Chart 2). Our equity strategists called for a 16% fall in the STOXX 600 in the short term vs yesterday’s levels, which translates to a further 10% drop in the SX5E from 24-Jun. Based on a historical relationship of SX5E 1wk returns & V2X 1wk changes, a 10% drop in the SX5E implies a rise of ~11 vol pts in the V2X (on average), which would take it near its 2011 high of 46 (Chart 3). Chart 4 extends the analysis from Chart 3 & highlights potential reaction of V2X in the coming month under various SX5E return scenarios. For instance, if the SX5E was to fall further by 16% in the next month, the VSTOXX is likely to be ~ 55.    How to read the projections in Chart 4: “Twk” stands for “time in weeks” from now to the end of a given projection. For instance, the green projection line in 2wks corresponds to an SX5E return of -8.5% [=6% * sqrt(2)] and predicts a V2X level of ~45.    We use an exponential decay process that is ‘fitted’ to each of the V2X, VIX and VNKY according to historical vol spike (see source of Chart 6 for details). Importantly, the decay process is independent of the starting level of vol, so it may be used to track the normalisation of a range of vol shocks: from the largest spikes in 2008 to the midsized ones in 2010-11 as well as the most recent (smaller) spikes (Chart 6, Chart 7, Chart 8). Note that in recent years, vol spikes have faded faster than in previous periods given the strong hand of central bank intervention (particularly in the US).    The VIX outperformed the SPX decline; however, it remains low vs the V2X US equity vol, which lagged the broader rise in stress in the lead up to the EU referendum, has outperformed today’s decline in the SPX (as of the EU close). This has led to a narrowing of the gap between US vs EU equity vol. The trend is likely to continue if the sell-off continues.""    Business Of Finance on Facebook, 28 June 2016

"Because of the historic and quantitative significance of Brexit, its impact on the world's financial markets hitherto, and the scale of surprises, we thought it would be more than appropriate to piece together some illustrations to give you a sense of just how mega this event was. Like we said earlier last week, Brexit will be staying in the history books.

Courtesy of BofAML's cross asset research team, we have some telling facts of Brexit that will our things into perspective. Post Britain’s vote to Leave the EU, the EuroStoxx 50 experienced its largest ever 1-day loss in history. Cable (GBPUSD) was slammed to 31-year lows. On Friday various other markets markets saw volatile moves that put 2008 in the dust. The historic collapse in GBPUSD was not only far greater than any such move seen in history, but was an unprecedented 12 standard deviations in magnitude. Statically, this almost never happens on a normal distribution. But it did.

Other crosses such as EURJPY, EURUSD, bonds such as 10-year bunds experienced daily moves that were more significant than on any day in 2008 (Lehman).

As BofAML puts it pointy, "gaps in risk perception that were evident even as recently as last week (VSTOXX-VIX spread was as wide as 20pts), may narrow further as spillover risk to global assets remains high." The bank's Critical Stress Indicator (via GFSITM index) was triggered on 13 June, "suggesting cross asset stresses had risen by enough to lead to widespread contagion, absent policy intervention."

So in essence, some markets are fairly priced (most currencies) but will probably see more selling/buying going forward, but other assets are wrongly priced (volatility, stocks, and perhaps credit). Assets that are wrongly priced should begin reverting to where the gravity currently is: Risk and FX.

***

BofAML has much more details:

"While derivatives markets like Sterling options clearly anticipated event risk around the referendum as early as April, there were record gaps in risk perception across regions and asset classes even days before the vote. Bank of America believes that gaps will further narrow as markets outside Europe realize the risks Brexit creates for global markets. For instance, at the time of writing the VSTOXX (V2X)-VIX spread, which traded as wide as 20 pts in the last week, decreased to ~13pts (EU close) as US equity volatility catches up with that in Europe.

  • Sterling had a 12 sigma move (vs history) on 24-Jun: GBPUSD, risk perception on which has been among the most stretched metrics across the GFSI leading up to EU referendum, reacted the most across the assets in Chart 2. This highlights just how important it is to pay attention to metrics close to the source of stress.
  • GBPUSD, EURJPY, EURUSD & 10yr Bunds were more shocked than even ‘08: Price action suggests FX & bond markets were more shocked by Brexit than they were at any time in 2008.
  • Scope of further contagion remains high: The GFSI’s Critical Stress Signal triggered on 13-Jun, as FX & equity stresses rose sharply. The markets’ reaction to Brexit has also witnessed a narrowing of some gaps in risk perception like the V2XVIX spread; indeed the VIX was >2x more surprised than the V2X today. Given the highly significant moves in cross asset stress and the relative underperformance of V2X (see later) versus EU equities, this metric will be a key barometer for monitoring contagion.

The V2X lagged in the largest 1-d SX5E drop; may rise to ~46 if sell-off persists:

The V2X underperformed the (~8.5%) fall in the SX5E today – rising by ~3.5 pts, while a historical relationship would suggest an increase of ~10 pts (Chart 2). Our equity strategists called for a 16% fall in the STOXX 600 in the short term vs yesterday’s levels, which translates to a further 10% drop in the SX5E from 24-Jun. Based on a historical relationship of SX5E 1wk returns & V2X 1wk changes, a 10% drop in the SX5E implies a rise of ~11 vol pts in the V2X (on average), which would take it near its 2011 high of 46 (Chart 3). Chart 4 extends the analysis from Chart 3 & highlights potential reaction of V2X in the coming month under various SX5E return scenarios. For instance, if the SX5E was to fall further by 16% in the next month, the VSTOXX is likely to be ~ 55.

How to read the projections in Chart 4: “Twk” stands for “time in weeks” from now to the end of a given projection. For instance, the green projection line in 2wks corresponds to an SX5E return of -8.5% [=6% * sqrt(2)] and predicts a V2X level of ~45.

We use an exponential decay process that is ‘fitted’ to each of the V2X, VIX and VNKY according to historical vol spike (see source of Chart 6 for details). Importantly, the decay process is independent of the starting level of vol, so it may be used to track the normalisation of a range of vol shocks: from the largest spikes in 2008 to the midsized ones in 2010-11 as well as the most recent (smaller) spikes (Chart 6, Chart 7, Chart 8). Note that in recent years, vol spikes have faded faster than in previous periods given the strong hand of central bank intervention (particularly in the US).

The VIX outperformed the SPX decline; however, it remains low vs the V2X US equity vol, which lagged the broader rise in stress in the lead up to the EU referendum, has outperformed today’s decline in the SPX (as of the EU close). This has led to a narrowing of the gap between US vs EU equity vol. The trend is likely to continue if the sell-off continues.""

Business Of Finance on Facebook, 28 June 2016

  "Since June 2015, DM bond yield have been slashed in half (massive rally in DM bond prices) as the world entered into the new age of monetary policy: The deep, dark, and very cold negative interest rate twilight zone. With the ECB easing like a mad horse (without any actual tangible possible effect on the European risk assets and the economy), and the BoJ messing with NIRP for the first time in its history and monetizing not just bonds and corporate bonds and stocks, global DM bond yields have never been lower.    The last 2 days (post Brexit) have seen a massive capital flight into safe havens which include DM bonds (bunds, gilts, SGBs, JGBs...), further suppressing yields. 10-year UK Gilts are now  under 1% for the first time ever. German bund yields are crashing to record (negative) lows. 10Y USTs are back 1.5%, while JGBs are at a record chill of -0.22%!    On the other side of the coin, EU peripheral sovereign bond spreads (PIIGS) are spiking, and  CDS default risk also surging. Watch for credit rating downgrades in the coming days and weeks. Also expect more and more EU member states, who are getting more fed up with the bloc's policies, start launching threats of their own referendum of independence... When that happens, the real chaos will start storing in Europe, and the bloc will then face its biggest existential threat yet.    ***    More color from Bloomberg's Mark Cudmore:    "Ten-year U.K. yields fell 29 basis points to 1.086% on Friday, wiping off about 1/5 of their annual return in a day and taking the rate to its lowest level since at least 1989.    Not only are gilts perceived as a liquid haven asset, but there’s a strong belief that the Bank of England will be forced to cut interest rates to support the economy.    That logic might justify the move seen in the front-end –- 2-year gilts paid 27 basis points at the end of Friday, about half what they offered before counting in the referendum began -- but at the long-end, all the risks appear to be for yields to go higher from here.    These bonds attracted haven demand even as S&P, Moody’s and Fitch warned Friday that they’re likely to cut the U.K.’s credit rating. Such negative action is increasingly probable and imminent while domestic political turmoil persists.    Not only will this hit demand for gilts but, for as long as uncertainty around the U.K.’s future persists, money is likely to flow out of the country. On Friday, that money moved from riskier assets such as equities to sovereign bonds -– the next step will be taking that cash out of the country entirely. Hence, some of the gilt demand may just have been a temporary step on the way to the exit.    Bank of England rate cuts may seem the most likely monetary action -– but if the pound continues to weaken there’s a not- insignificant risk that rates will be raised to defend the currency. At the very least, a depreciating sterling may reduce the ability and/or need for lower borrowing costs.    And if a full Brexit becomes certain, then concern over the country’s large structural current account deficit will intensify, putting further upward pressure on rates.    Panicked markets cause price-distortions and provide opportunities. The risk-reward ratio of long-end gilts may now be skewed very far one way.""    Business Of Finance on Facebook, 27 June 2016

"Since June 2015, DM bond yield have been slashed in half (massive rally in DM bond prices) as the world entered into the new age of monetary policy: The deep, dark, and very cold negative interest rate twilight zone. With the ECB easing like a mad horse (without any actual tangible possible effect on the European risk assets and the economy), and the BoJ messing with NIRP for the first time in its history and monetizing not just bonds and corporate bonds and stocks, global DM bond yields have never been lower.

The last 2 days (post Brexit) have seen a massive capital flight into safe havens which include DM bonds (bunds, gilts, SGBs, JGBs...), further suppressing yields. 10-year UK Gilts are now  under 1% for the first time ever. German bund yields are crashing to record (negative) lows. 10Y USTs are back 1.5%, while JGBs are at a record chill of -0.22%!

On the other side of the coin, EU peripheral sovereign bond spreads (PIIGS) are spiking, and  CDS default risk also surging. Watch for credit rating downgrades in the coming days and weeks. Also expect more and more EU member states, who are getting more fed up with the bloc's policies, start launching threats of their own referendum of independence... When that happens, the real chaos will start storing in Europe, and the bloc will then face its biggest existential threat yet.

***

More color from Bloomberg's Mark Cudmore:

"Ten-year U.K. yields fell 29 basis points to 1.086% on Friday, wiping off about 1/5 of their annual return in a day and taking the rate to its lowest level since at least 1989.

Not only are gilts perceived as a liquid haven asset, but there’s a strong belief that the Bank of England will be forced to cut interest rates to support the economy.

That logic might justify the move seen in the front-end –- 2-year gilts paid 27 basis points at the end of Friday, about half what they offered before counting in the referendum began -- but at the long-end, all the risks appear to be for yields to go higher from here.

These bonds attracted haven demand even as S&P, Moody’s and Fitch warned Friday that they’re likely to cut the U.K.’s credit rating. Such negative action is increasingly probable and imminent while domestic political turmoil persists.

Not only will this hit demand for gilts but, for as long as uncertainty around the U.K.’s future persists, money is likely to flow out of the country. On Friday, that money moved from riskier assets such as equities to sovereign bonds -– the next step will be taking that cash out of the country entirely. Hence, some of the gilt demand may just have been a temporary step on the way to the exit.

Bank of England rate cuts may seem the most likely monetary action -– but if the pound continues to weaken there’s a not- insignificant risk that rates will be raised to defend the currency. At the very least, a depreciating sterling may reduce the ability and/or need for lower borrowing costs.

And if a full Brexit becomes certain, then concern over the country’s large structural current account deficit will intensify, putting further upward pressure on rates.

Panicked markets cause price-distortions and provide opportunities. The risk-reward ratio of long-end gilts may now be skewed very far one way.""

Business Of Finance on Facebook, 27 June 2016

  "The S&P 500 just traded with a 1900 handle, breaking under the big figure and key psychological support of 2,000. Risk off flows clearly accelerated after the U.S. open with selling turning very impulsive very quickly. We expect more downside and are targeting the mid 1900s in the medium term. Question is how long do we take to get there.    Also, in this chart you can see how stocks traded since Thursday; from the initial false upside breakout courtesy of some very irresponsible reporting by YouGov that the 'remain' camp would win, to the sudden realization that Brexit had been lurking under the rug, and that risk assets had totally underpriced the risk of what was then thought of as almost a non-event. Friday's coordinated effort by global CBs managed to spark a ramp in risk and a strong bounce in GBP crosses, but as we closed in on the final hours for Friday, that ebullience faded quickly with stocks gapping lower at Monday's open (today), and heading lower ever since.    For those feeling lucky, please don't be a dip buyer here... We don't want to witness suicide."    Business Of Finance on Facebook, 27 June 2016

"The S&P 500 just traded with a 1900 handle, breaking under the big figure and key psychological support of 2,000. Risk off flows clearly accelerated after the U.S. open with selling turning very impulsive very quickly. We expect more downside and are targeting the mid 1900s in the medium term. Question is how long do we take to get there.

Also, in this chart you can see how stocks traded since Thursday; from the initial false upside breakout courtesy of some very irresponsible reporting by YouGov that the 'remain' camp would win, to the sudden realization that Brexit had been lurking under the rug, and that risk assets had totally underpriced the risk of what was then thought of as almost a non-event. Friday's coordinated effort by global CBs managed to spark a ramp in risk and a strong bounce in GBP crosses, but as we closed in on the final hours for Friday, that ebullience faded quickly with stocks gapping lower at Monday's open (today), and heading lower ever since.

For those feeling lucky, please don't be a dip buyer here... We don't want to witness suicide."

Business Of Finance on Facebook, 27 June 2016

  "With everything being sold in the heat of Brexit, it is financials (European & UK) that are really getting punished most badly. Traders are frantic this morning as George Osborne's calming words have done nothing to halt the carnage and bank stocks. EU financials are down -23% in the last 2 days (Friday & Monday)...    Italian banks are down over 25% since Thursday's close. Many British banks were halted for trading today (eg: RBS -13% and halted), and are also trading at record lows. Deutsche Bank (Europe's largest and most connected bank) is extending losses (-7.2% today alone) and seems to be following in the footsteps of Lehman towards oblivion to fresh all-time lows.    The contagion is spreading too, as UK default risk (measured by 5Y CDS) has spiked to 3-year highs and as we reported just now, USD liquidity demands are surging with funding markets seeing serious distress and inching closer to being frozen.    As one vet trader remarked, "it's a f**king bloodbath." We agree."    Business Of Finance on Facebook, 27 June 2016

"With everything being sold in the heat of Brexit, it is financials (European & UK) that are really getting punished most badly. Traders are frantic this morning as George Osborne's calming words have done nothing to halt the carnage and bank stocks. EU financials are down -23% in the last 2 days (Friday & Monday)...

Italian banks are down over 25% since Thursday's close. Many British banks were halted for trading today (eg: RBS -13% and halted), and are also trading at record lows. Deutsche Bank (Europe's largest and most connected bank) is extending losses (-7.2% today alone) and seems to be following in the footsteps of Lehman towards oblivion to fresh all-time lows.

The contagion is spreading too, as UK default risk (measured by 5Y CDS) has spiked to 3-year highs and as we reported just now, USD liquidity demands are surging with funding markets seeing serious distress and inching closer to being frozen.

As one vet trader remarked, "it's a f**king bloodbath." We agree."

Business Of Finance on Facebook, 27 June 2016

  "Now this chart should looks familiar to traders. Safe haven assets chiefly the Japanese yen, Swiss franc, gold (precious metals), DM government bonds, and to a slight extent IG and higher quality corporate credit, have been happy beneficiaries of a pounded pound (catch the pun?), tanking risk assets (stocks, carry, vol, commodities, sub credit, EM, ect...), and just the vacuum of certainty.    No one really knows that to expect next with so much noise as to what the UK and EU plans to do next. But as traders, we are betting on continued risk off flows. There's little reason not to in our opinion."    Business Of Finance on Facebook, 27 June 2016

"Now this chart should looks familiar to traders. Safe haven assets chiefly the Japanese yen, Swiss franc, gold (precious metals), DM government bonds, and to a slight extent IG and higher quality corporate credit, have been happy beneficiaries of a pounded pound (catch the pun?), tanking risk assets (stocks, carry, vol, commodities, sub credit, EM, ect...), and just the vacuum of certainty.

No one really knows that to expect next with so much noise as to what the UK and EU plans to do next. But as traders, we are betting on continued risk off flows. There's little reason not to in our opinion."

Business Of Finance on Facebook, 27 June 2016

  "Cable (GBPUSD) is now much under Friday's post Brexit lows of 1.32ish. Now trading with a 1.31 handle, all GBP crosses also pounded below their respective Friday lows. We illustrate the action in GBPUSD with our chart. Cable fell more than -8% on Friday, and is now down another 4.7% from Monday's open, more thane trading the farcical bounce which started mid-Friday after a coordinated effort by global central banks to halt the exodus of capital out of the UK and EU.    That apparently didn't work, and as we said in our previous posts, these central banking hamsters are going to need a much much bigger bazooka to even think of halting this tidal wave of frightened capital. Fear is starting to turn into panic as we see it. Price action is telling us to expect more downside. GBPUSD testing 1.3000 is not a question of if, but how quickly sterling clears the last few critical support levels before facing 1.25 and lower...    Also, UK government bonds are very bid (10Y yield at fresh record lows how ironic), rather surprisingly as we noted in the chart. Perhaps the flight to safety and anti-GBP flows are so intense that money doesn't mind parking in gilts go the time being until market liquidity allows a better alternative."    Business Of Finance on Facebook, 27 June 2016

"Cable (GBPUSD) is now much under Friday's post Brexit lows of 1.32ish. Now trading with a 1.31 handle, all GBP crosses also pounded below their respective Friday lows. We illustrate the action in GBPUSD with our chart. Cable fell more than -8% on Friday, and is now down another 4.7% from Monday's open, more thane trading the farcical bounce which started mid-Friday after a coordinated effort by global central banks to halt the exodus of capital out of the UK and EU.

That apparently didn't work, and as we said in our previous posts, these central banking hamsters are going to need a much much bigger bazooka to even think of halting this tidal wave of frightened capital. Fear is starting to turn into panic as we see it. Price action is telling us to expect more downside. GBPUSD testing 1.3000 is not a question of if, but how quickly sterling clears the last few critical support levels before facing 1.25 and lower...

Also, UK government bonds are very bid (10Y yield at fresh record lows how ironic), rather surprisingly as we noted in the chart. Perhaps the flight to safety and anti-GBP flows are so intense that money doesn't mind parking in gilts go the time being until market liquidity allows a better alternative."

Business Of Finance on Facebook, 27 June 2016

  "On Friday we saw very predictable reactions from central banks all across the world. The BoJ, BoE, Fed, SNB, ECB, and IMF all came out almost at once to placate a terrified lot of traders and investors with promises of liquidity injections, QE, currency swap lines, and "whatever it takes" to preserve financial market stability.    From this chart you can see exactly how this grip of CBs have tried to artificially alter the true picture of a post-Brexit storyboard. The fact that the UK stock market was able to close down a mere -2.7% when it was down some -8.7% at its lows on Friday, is proof that central banks and the powers that be will never in their lifetimes allow another Lehman moment to happen. Whatever it takes to maintain some semblance of organization and stability.    As we said, we are such bounces as good opportunities for fades. So trade accordingly!"    Business Of Finance on Facebook, 27 June 2016

"On Friday we saw very predictable reactions from central banks all across the world. The BoJ, BoE, Fed, SNB, ECB, and IMF all came out almost at once to placate a terrified lot of traders and investors with promises of liquidity injections, QE, currency swap lines, and "whatever it takes" to preserve financial market stability.

From this chart you can see exactly how this grip of CBs have tried to artificially alter the true picture of a post-Brexit storyboard. The fact that the UK stock market was able to close down a mere -2.7% when it was down some -8.7% at its lows on Friday, is proof that central banks and the powers that be will never in their lifetimes allow another Lehman moment to happen. Whatever it takes to maintain some semblance of organization and stability.

As we said, we are such bounces as good opportunities for fades. So trade accordingly!"

Business Of Finance on Facebook, 27 June 2016

  "If this chart doesn't give you a headache then nothing will. There's little to explain here besides reveling in disbelief that central banks have still not learned from their mistakes committed over the past decade. On Friday after the unthinkable happened, we saw how CBs manipulated market prices by threatening to intervene with their best volition, offering unlimited liquidity via swap lines to the UK, buying up GBP and USD and selling JPY and CHF in an attempt to starve risk off flows of their fuel (good luck attempting this). Offering outright liquidity injections (BoE's ultimate weapon of choice).    As a result, we saw anywhere from a 50-70% retracement in many markets around 1am EST on Friday, right after Japanese stock futures were halted and U.S. equity futures went 'limit down' about an hour later. Whatever the case, we will be sellers of risk into any pullback, into any attempt of central banks to manipulate prices higher on the basis that they could do so in the past (but they shall be humiliated this time round)...    The British have spoken to leave the EU. Now the markets will be reflecting that fact by going much lower. If central banks are planning to prevent the markets from reacting the way they should, they'll need a much bigger gun!"    Business Of Finance on Facebook, 27 June 2016

"If this chart doesn't give you a headache then nothing will. There's little to explain here besides reveling in disbelief that central banks have still not learned from their mistakes committed over the past decade. On Friday after the unthinkable happened, we saw how CBs manipulated market prices by threatening to intervene with their best volition, offering unlimited liquidity via swap lines to the UK, buying up GBP and USD and selling JPY and CHF in an attempt to starve risk off flows of their fuel (good luck attempting this). Offering outright liquidity injections (BoE's ultimate weapon of choice).

As a result, we saw anywhere from a 50-70% retracement in many markets around 1am EST on Friday, right after Japanese stock futures were halted and U.S. equity futures went 'limit down' about an hour later. Whatever the case, we will be sellers of risk into any pullback, into any attempt of central banks to manipulate prices higher on the basis that they could do so in the past (but they shall be humiliated this time round)...

The British have spoken to leave the EU. Now the markets will be reflecting that fact by going much lower. If central banks are planning to prevent the markets from reacting the way they should, they'll need a much bigger gun!"

Business Of Finance on Facebook, 27 June 2016

  "Brexit sparks market turmoil, which sparks global central banking panic. This means no more rate hike for the rest of 2016 by the Fed, as Fed Funds futures have discounted for last week. There is now a higher chance for a rate cut by the Fed than a rate hike. We believe that as risk aversion continues on (which we believe will be the case), we can expect the Fed to really contemplate ditching its tightening cycle and quickly flip to easing. Quite far fetched for now but once global stocks hit -10% in 3 trading days, this prospect becomes more believable.    Besides crashing Fed rate hike odds, big players are also betting that the FF rate will trade below zero in 2016 and 2017. Open interest in Eurodollar futures due in 2017 and beyond reached a record high last Friday, implying that the market is placing a lot of money on the possibility that the Fed cuts rates back towards the zero lower bound.    We guess we don't really have to explain to followers why this is happening. Brexit was never really taken seriously by the markets (that's why everything crashed so hard), but it has actually materialized. So expect a frenzy of central bank liquidity injections, put writing under financial asset prices, and lots of jaw boning as they try to calm shaken markets.    We wish them the best of luck, but aren't holding our breaths at all."    Business Of Finance on Facebook, 27 June 2016

"Brexit sparks market turmoil, which sparks global central banking panic. This means no more rate hike for the rest of 2016 by the Fed, as Fed Funds futures have discounted for last week. There is now a higher chance for a rate cut by the Fed than a rate hike. We believe that as risk aversion continues on (which we believe will be the case), we can expect the Fed to really contemplate ditching its tightening cycle and quickly flip to easing. Quite far fetched for now but once global stocks hit -10% in 3 trading days, this prospect becomes more believable.

Besides crashing Fed rate hike odds, big players are also betting that the FF rate will trade below zero in 2016 and 2017. Open interest in Eurodollar futures due in 2017 and beyond reached a record high last Friday, implying that the market is placing a lot of money on the possibility that the Fed cuts rates back towards the zero lower bound.

We guess we don't really have to explain to followers why this is happening. Brexit was never really taken seriously by the markets (that's why everything crashed so hard), but it has actually materialized. So expect a frenzy of central bank liquidity injections, put writing under financial asset prices, and lots of jaw boning as they try to calm shaken markets.

We wish them the best of luck, but aren't holding our breaths at all."

Business Of Finance on Facebook, 27 June 2016

  "Who were hit the hardest by Brexit? The rich, the uber rich to be precise. The Bloomberg British Billionaire Wealth Index slumped from $81.3bn on Thursday, to $75.3bn on Friday. We just got news that legendary billionaire investors George Soros was net long of the pound going into Brexit (based on a most recent Bloomberg article); recall how Soros was a very vocal antagonist on the UK leaving the EU, and was one of the biggest spreaders of the Brexit fear.    And it is true that the rich have the most vested interests that the UK remains a part of Europe. Any deviation from this status quo would spell large losses and both Europe and Britain will hurt — a loose-loose situation that benefits no one in the short to medium term.    Meanwhile, do not be blindsided by Brexit; the fundamentals and technicals still matter. USDCHN (offshore Chinese yuan) has been implying lower equity valuations for quite a while now, with stocks only ranging high above the key indicator of risk appetite. In the past 2 occasions where he S&P 500 diverged this widely from USDCHN (inverse), stocks always corrected much lower in a convergence trade. Will we see another one of those episodes again, now that risk aversion is the name of the game thanks to Brexit? We think so."    Business Of Finance on Facebook, 27 June 2016

"Who were hit the hardest by Brexit? The rich, the uber rich to be precise. The Bloomberg British Billionaire Wealth Index slumped from $81.3bn on Thursday, to $75.3bn on Friday. We just got news that legendary billionaire investors George Soros was net long of the pound going into Brexit (based on a most recent Bloomberg article); recall how Soros was a very vocal antagonist on the UK leaving the EU, and was one of the biggest spreaders of the Brexit fear.

And it is true that the rich have the most vested interests that the UK remains a part of Europe. Any deviation from this status quo would spell large losses and both Europe and Britain will hurt — a loose-loose situation that benefits no one in the short to medium term.

Meanwhile, do not be blindsided by Brexit; the fundamentals and technicals still matter. USDCHN (offshore Chinese yuan) has been implying lower equity valuations for quite a while now, with stocks only ranging high above the key indicator of risk appetite. In the past 2 occasions where he S&P 500 diverged this widely from USDCHN (inverse), stocks always corrected much lower in a convergence trade. Will we see another one of those episodes again, now that risk aversion is the name of the game thanks to Brexit? We think so."

Business Of Finance on Facebook, 27 June 2016

  "Which countries were hit the hardest on Brexit Friday? The answer might surprise you and many others to be honest. One would logically be expected to assume that UK stocks were hit the hardest as it is Britain that is at the epicenter of this entire saga. Furthermore, the GBP is the hardest hit asset (beta adjusted basis), so it would only make sense if UK equities suffer the same consequence.    But no. As we show in this chart, the FTSE 100 (UK benchmark equity index) was actually the BEST PERFORMING equity market in the entire of Europe. While at the lows the FTSE 100 was about -9% lower, it staged an insane and almost unbelievable bounce from the lows to 'only' close down -2.7%, beating all other of its European peers. We couldn't believe our eyes either.    The rhetorical question of how can British stocks be the best performers after such a monolithic event as Brexit (which we have said time and again was unprecedented any way we looked at it). So welcome to the demented world we leave in, where a country most effected by a crisis I'd supernatural proportions turns out to be least damaged (at least in terms of its stock market performance)."    Business Of Finance on Facebook, 27 June 2016

"Which countries were hit the hardest on Brexit Friday? The answer might surprise you and many others to be honest. One would logically be expected to assume that UK stocks were hit the hardest as it is Britain that is at the epicenter of this entire saga. Furthermore, the GBP is the hardest hit asset (beta adjusted basis), so it would only make sense if UK equities suffer the same consequence.

But no. As we show in this chart, the FTSE 100 (UK benchmark equity index) was actually the BEST PERFORMING equity market in the entire of Europe. While at the lows the FTSE 100 was about -9% lower, it staged an insane and almost unbelievable bounce from the lows to 'only' close down -2.7%, beating all other of its European peers. We couldn't believe our eyes either.

The rhetorical question of how can British stocks be the best performers after such a monolithic event as Brexit (which we have said time and again was unprecedented any way we looked at it). So welcome to the demented world we leave in, where a country most effected by a crisis I'd supernatural proportions turns out to be least damaged (at least in terms of its stock market performance)."

Business Of Finance on Facebook, 27 June 2016

Friday is the appetizer for Monday

From RBC's Charlie McElligott:

The early macro trade has been focused on two things:

  1. The outstanding performance of credit early (even before the stock rally as HY, IG and Converts all saw size “offers wanted” around Street from real $ and credit HFs) and;
  2. Monetization of downside hedges from select macro funds in stocks and GBP (and then seeing those same accts turn and buy upside calls) as the driver of this phenomenal 60-plus handle rally in Spooz off the lows / pairing-back of half the collective loss in liquid EU equities indices / 500 pip recovery in GBP off lows.

Same with VIX as a derivative of that too, where profit-takers in their upside vol bets have made the VIX a one-way trade lower today (or V2X which is EU’s version of VIX and was +32% at one point today….now just +6%). Similarly with regards to “monetization of winners,” USTs options are seeing ‘like’ flows—extremely profitable liquidation of TY calls, contributing the the move higher in UST 10Y yields +17bps off the lows).

There are some who are pounding-table for another leg-down in risk, but now that we’ve just cleared the first hour, I’m seeing INCREASED client activity (after almost consensual “avoiding the noise of the cash open” feedback earlier), and it’s significantly “better to buy.” We’re now running at 280% of the 20adv (notional) on the US cash desk, and sit at 64.2% notionally better to buy.

By the way, the longer we go on without seeing a “rollover” in Spooz, you’ll see further capitulation from overnight futures shorts who are already way upside-down.

I do feel that Monday is where we’re going to see a truer-look at “where the bodies are buried” and a more accurate “price discovery” process than what we’re seeing today (as we’re washing out all the delta one flows which are dwarfing client trading)…lots of discipline being displayed thus far, with low turnovers and folks not chasing. 

  • FTSE (UKX, benchmark equities index) is an absolute CHAMP right, trading -8.7% within the first 10 minutes of the open before clawing-back to all but -1.9% at ‘highs.’ Wrap your head around this: week-to-date, UKX is up over 2.8%! What’s the driver of today’s massive rally? People are getting their arms around the impact of this extraordinarily weak Sterling as a backdoor stimulus for exporters (ironic the power of what a departure from the EU can do vs what x # of kagillions of QE purchases couldn’t get done) and the inevitable rate cut from the BoE.
  • What I have to continue keeping one eyeball on is SX7E (EU banks index); the thing cannot get off mat. And if that can’t get off the mat, peripheries (and their sovereign debt) won’t either, as we re-enter the EU-crisis-era “Doom Loop” where widening sovereign spreads drag down the banks who are stuffed to the gills with them….vicious cycle, what else is new. FWIW, as I write and we’ve had this massive bounce in equities, Italian stocks (FTSEMIB) are back at their lows. This will likely be the next “hot zone” as we begin playing EU existential dominos (Spanish elections Sunday too).
  • My model Equity L/S portfolio is -285bps today. That is NOT cool.  Elsewhere, from a thematic or factor perspective, we see the implications we spoke about earlier of the RAGINGLY STRONGER DOLLAR smashing the reflation / cyclical beta trade (value, energy, beta all struggling, while momentum mkt neutral works with defensive longs + and fins / biotech / energy).
  "European banks were hit the hardest ever, down -13% on Friday alone. Ironically, Brexit isn't entirely an issue which directly impacts European financials, yet the correlation-to-one phenomenon caused the worst selloffs amongst European stocks.    The ECB has not commented on Brexit yet, unlike its peers the BoE and Fed. However, the European Commission stated that it wanted the UK out of the EU as soon as readily possible. Such posture and rhetoric is very unlike what would usually be coming from head of the European Commission, Jean Junker. It can only mean one thing — the EU is VERY UPSET that the UK voted for to leave the union, and as part of a face-saving maneuver, it has flipped sides overnight to be pro Brexit, hastening the jettison of the un-United Kingdom!"    Business Of Finance on Facebook, 27 June 2016

"European banks were hit the hardest ever, down -13% on Friday alone. Ironically, Brexit isn't entirely an issue which directly impacts European financials, yet the correlation-to-one phenomenon caused the worst selloffs amongst European stocks.

The ECB has not commented on Brexit yet, unlike its peers the BoE and Fed. However, the European Commission stated that it wanted the UK out of the EU as soon as readily possible. Such posture and rhetoric is very unlike what would usually be coming from head of the European Commission, Jean Junker. It can only mean one thing — the EU is VERY UPSET that the UK voted for to leave the union, and as part of a face-saving maneuver, it has flipped sides overnight to be pro Brexit, hastening the jettison of the un-United Kingdom!"

Business Of Finance on Facebook, 27 June 2016

  "We might be seeing the uber scary crashes on the surface of the financial markets (GBP, stocks, risk, short duration, ect...) but the real demon rests beneath. The money markets in Europe are literally frozen after Brexit. Hardly anyone wants to borrow in euros or pounds anymore. Even if banks did, they would be paying much higher spreads to counterparties and dealers.    As shown, EUR-USD basis has crashed to the lowers ever at -70bp, surpassing the lows of Lehman in 2008 and the European Sovereign Debt Crisis (where the euro was really treated like a cursed asset by borrowers and lenders) in 2012. This just goes to show how much banks really fear the ripple effects Brexit will effect in the coming days and weeks on European markets, and not just the English markets in isolation. USD is heavily in demand. The Fed and Yellen both know this very well, and have therefore issued their respective statements on Friday, assuaging markets that the world's biggest and best trolling central bank stands ready to offer USD liquidity to Europe and the UK via its existing FX swap lines out in place almost 4 years back.    Besides shunning euros and pounds, British banks are Alamo shunning each other! Libor-OIS spread on GBP has exploded to 2012 highs (European Sov Debt Crisis again) as banks are now charging much higher to borrow and deal in GBP for overnight or longer. In short, counterparty risk has surged dramatically. The markets might be starting to question if banks with large GBP and EUR books can stomach the volatile and MTM losses stemming from Brexit. We will know shortly..."    Business Of Finance on Facebook, 27 June 2016

"We might be seeing the uber scary crashes on the surface of the financial markets (GBP, stocks, risk, short duration, ect...) but the real demon rests beneath. The money markets in Europe are literally frozen after Brexit. Hardly anyone wants to borrow in euros or pounds anymore. Even if banks did, they would be paying much higher spreads to counterparties and dealers.

As shown, EUR-USD basis has crashed to the lowers ever at -70bp, surpassing the lows of Lehman in 2008 and the European Sovereign Debt Crisis (where the euro was really treated like a cursed asset by borrowers and lenders) in 2012. This just goes to show how much banks really fear the ripple effects Brexit will effect in the coming days and weeks on European markets, and not just the English markets in isolation. USD is heavily in demand. The Fed and Yellen both know this very well, and have therefore issued their respective statements on Friday, assuaging markets that the world's biggest and best trolling central bank stands ready to offer USD liquidity to Europe and the UK via its existing FX swap lines out in place almost 4 years back.

Besides shunning euros and pounds, British banks are Alamo shunning each other! Libor-OIS spread on GBP has exploded to 2012 highs (European Sov Debt Crisis again) as banks are now charging much higher to borrow and deal in GBP for overnight or longer. In short, counterparty risk has surged dramatically. The markets might be starting to question if banks with large GBP and EUR books can stomach the volatile and MTM losses stemming from Brexit. We will know shortly..."

Business Of Finance on Facebook, 27 June 2016

Stories of huge losses making the rounds as sleepless nights taunt traders

From RBC's Charlie McElligott:

Correlations go to zero on Brexit napalm 

QUICK UPDATE:

Pockets of risk are notably higher off the initial "shock" levels seen last night (i.e. GBP trading back to 1.388 last from 1.323 low / JPY to 103.1 last from 99.0 low / FTSE from -8.7 to now “just” -5.1% / SPX at worst -120 handles to 1999, now 2032 last), as tactical market participants front-run expected liquidity injections and interventions from CB's to either ‘dip buy’ for a trade, or sell into.

Nonetheless, the ‎psychological damage overnight is simply jarring, and the long-term implications of the first domino in a potential "unwind" of globalization / shift to populism / protectionism / nationalism (see every nationalist right party calling for referendums throughout their respective countries in the EU) plays-out against a trading world lulled to sleep by the siren-song of "free carry," low vol and leverage.  As stated last week, when people, goods and money are unable to move freely, it's a global growth negative, period.

COMMENTARY:

Just...wow. The "left tail" scenario has played-out, and now, we are in the midst of a real-time "Minsky Moment" in Europe.

The UK has voted to leave the EU, shocking pollsters, book-makers, statisticians and--even just a handful of hours ago--the universal "market" embrace‎ of an assumed "remain" scenario. I was part of that complacency.  On account of this “all clear” view, many market participants had spent much of this past week "grossing back up."

The market carnage is staggering with regards to the violence seen in such a short period of time, as the stress and convexity of the move is exacerbated by the inability and unwillingness of market-makers to provide liquidity. There are few bodies capable of catching the falling knife right now, which has been the exact "unintended consequences" of post-crisis regulation that banks and brokers have warned about. Markets could SURE use that dealer balance sheet, prop desk or stat arb market-making book to mitigate such exaggerated price-action, i.e. JPY moving 450pips in about 7 seconds last night when it made absolute lows.

Moves of this magnitude are pure reads on "force outs"...that wasn't discretionary selling / covering, as NOBODY was positioned for this.  The tide has "gone out"...and we are about to see who's been swimming naked.

It's "game over" for anybody out there who was short duration.  ‎CTA's / systematic trend strategies / managed futures funds / Crude and FX carry traders--all of whom exist on leverage--here comes "Mr Margin" calling on your risk longs.  Obviously the "long cyclical beta" equities trade, which has been the basis of the recovery off the February lows, is about to come unglued when the US opens.  Bank options dealer desks who by definition are "short volatility," as well as many clients who've made a living shorting vol in the post-GFC era as well--there are going to be some "lights out" stories making the rounds on huge losses... very scary stuff. 

LARGEST OVERNIGHT MOVERS ON Z-SCORE BASIS:

EU-centric obviously, but the drag-down implications of the Dollar move higher (see: crude and EMFX) are very troubling.

And don’t sleep on EU credit, where both SubFin and Xover are seeing 3.5+SD moves (SubFin just behind Lehman for all-time largest % one day move).

WHAT IS MOST “AT RISK”?:

EU periphery equities (BANKS BANKS BANKS SX7E now -16.3% on day and 32.7% YTD, along w/ consumer discretionary), Eu peripheral Bonds (BTPs and Bonos), EU FX (Sterling resets to a new level in light of current acct deficit, Euro resets on existential risk uncertainty freezing the entire union economy), EMFX breakdown on USD move and leveraged deployed in space, and flight to safety in Yen and Franc crushing Japanese and Swiss exporters and thus local stock markets.

WHERE DOES THE $ GO?:

Gold and all things US—UST’s, USD, even US equities (not immediately of course, but eventually on relative basis) seeing enormous safe haven bid.  "Low vol" / "anti-beta" market neutral / defensive sectors like utes, staples, telco and sleepy healthcare will obviously outperform against aforementioned cyclicals, beta, consumer discretionary and financials.

WHAT MIGHT BE DIP-BUYABLE A LITTLE CLOSER TO THE “HOT ZONE”?:

There will be support "at a price" on the ability for ECB to intervene in EU credit and periphery sovereigns (although CDS will u/p cash bonds)…but that is real “Kevlar gloves” trading with tight stops.

RETURN OF THE DEFLATION TRADE:

Dollar strength should be absolutely crushing for crude / commods / EM, as the deflation trade spectre rears its head again.  Difficult to touch any of this stuff for a long time as I anticipate persistent weakness in Euro continuing to help strengthen the Dollar.

So is there any silver-lining here? Most likely, all the "bad news" is out there for now as we enter the haze of the article 50 / Lisbon Treaty "trigger" (3 month lag while PM Cameron transitions the government) and an ambiguous negotiated withdrawal that follows.

Now, we watch for "market stabilizing forces" - central banks, FX and pension rebalancers, corporates hedgers etc - to "do work."

IT'S TIME TO BE AWARE OF UPSIDE "GAP RISK" NOW AS THESE PLAYERS ARE FORCED INTO ACTION. Even more obvious are the conditioned "dip buyers" who are already front-running the above inevitable action.

WHAT ARE NEXT MOVES / THOUGHTS / QUESTIONS?:

  1.  BoE rate cut just a matter of time
  2.  Coordinated liquidity‎ CB swap lines…
  3. Fed inability to act preemptively with a cut of their own as it's not a local issue.  QE4 not relevant as rates have only plummeted lower. Tough spot for Yellen.
  4. What's the PBoC to do?‎  Yuan fixes at weakest level against the Dollar since Jan ’11.  Watch this.
  5. Govts intervening in FX mkts‎ real-time, esp the Swiss National Bank, and EM's (south Korea, India and likely Singapore already), with risk of BoJ soon...
  "Even after almost 3 days since the biggest event to hit the global financial markets since Lehman (and some would argue the biggest ever, because the action was concentrated into less than a day), it's still hard for many to wrap their heads around the sheer magnitude the moves we got on Friday.    Over the weekends, CNBC and Reuters reported that global financial markets (stocks, bonds, forex, futures...) collectively saw $2.1 trillion wiped out in under 24 hours. This makes Brexit the single largest disruption in mor seen day history. As almost everyone is exposed to leverage these days, we can only imagine the carnage as large portfolios scramble to rebalance after the most shocking event we will see in a very long time.    We shall let the charts to the story telling here. But in short, cable (GBPUSD) fell -11% on Friday (at the close). The intraday range on cable was  was some 1,800 pips (post YouGov farce at 1.5 to pre Tokyo halt at 1.32ish), the largest ever by a far, far shot. Cable rarely moves 100 pips a day. So this shock was about 15x the average daily range... That puts this move at around 14.2 sigmas, which statistically speaking, has less than 0.000001% chance of happening... But it did.    GBPUSD is now at 31-year lows (1985), implied and realized vol on GBP derivatives underpriced this move even hours before the crash and have yet to catch up to the massive delta."    Business Of Finance on Facebook, 27 June 2016

"Even after almost 3 days since the biggest event to hit the global financial markets since Lehman (and some would argue the biggest ever, because the action was concentrated into less than a day), it's still hard for many to wrap their heads around the sheer magnitude the moves we got on Friday.

Over the weekends, CNBC and Reuters reported that global financial markets (stocks, bonds, forex, futures...) collectively saw $2.1 trillion wiped out in under 24 hours. This makes Brexit the single largest disruption in mor seen day history. As almost everyone is exposed to leverage these days, we can only imagine the carnage as large portfolios scramble to rebalance after the most shocking event we will see in a very long time.

We shall let the charts to the story telling here. But in short, cable (GBPUSD) fell -11% on Friday (at the close). The intraday range on cable was  was some 1,800 pips (post YouGov farce at 1.5 to pre Tokyo halt at 1.32ish), the largest ever by a far, far shot. Cable rarely moves 100 pips a day. So this shock was about 15x the average daily range... That puts this move at around 14.2 sigmas, which statistically speaking, has less than 0.000001% chance of happening... But it did.

GBPUSD is now at 31-year lows (1985), implied and realized vol on GBP derivatives underpriced this move even hours before the crash and have yet to catch up to the massive delta."

Business Of Finance on Facebook, 27 June 2016

24 June (Friday, Results Day)

The ballots have officially closed (5pm EST). Now comes the nail-biting wait for each of the individual 382 counts to be reported and declared. Markets are extremely volatile (the most we've ever seen) and near impossible to trade as liquidity is much lower than average.

  "By now everyone should have caught up to the titanic events that have transpired overnight. The UK will officially leave the EU as its people have voted for. PM David Cameron will step down as leader of the Conservative Party. The entire English political construct should likely be restructured, spelling chaos for England. The world will wait and see if the UK's economy does indeed slip into a year-long recession as its leaders have warned incase of a Brexit (which has now happened). The pound sterling has crashed to a 30-year low against the dollar, posting its largest single day loss ever... So and and so forth.    As a result of this once unfathomable scenario, global markets (especially European ones) are in deep turmoil and a state of frenzied panic. For instance, the EuroStoxx 50 equity index gapped lower 9% at the European open, the largest single day loss ever (intraday). German bund yields have collapsed to record lows, with the 10-year yield hitting -0.17%, down -26bp from the day's open; this is an insane decline by any measure, and is especially large for zero or negative yielding bonds.    Flight to safety is the dominant theme currently. Capital is flowing out fast and furious from UK assets (stocks, bonds, cash) as British stocks, bonds (including government gilts), and the pound have crashed. Said capital has been rotating into the 'super safe' core European assets of Germany, Austria, and Switzerland. Capital has also been rotating into safe haven currencies and financial assets such as JPY, CHF, USD (to a much smaller extent), gold (precious metals in general), Bitcoin (yes, even digital virtual currencies), Japanese government bonds and the like.    Risk aversion will likely persist until some semblance of stability is achieved in the UK, we feel. Already, many analysts are putting our outrageous numbers and forecasts for the UK (macro economic, financial, financial assets ect...), and also the EU in general. 1.2-1.3 seems to be the consensus for GBPUSD on the conservative side. The scariest thing to all this is how the market totally misread reality leading up to the actually referendum, choosing to buy into opinion polls and bookkeepers' odds which both suggest that a 'remain' vote will win with some good margin.    In fact, the markets continued to discount for this assumption (which we know is totally wrong in hindsight) right up to the release of the first vote counts after the ballots closed at 2pm EST on Thursday. It was only until a few key municipals reported counts which were significantly in favor for 'leave' and hugely off consensus forecasts, that the financial markets really started to reverse their wrong course of action and actually trade in the logically right direction.    Such is our notion in brief — markets likely have much more to go on their current anti-UK trends. The fact that these moves were so huge but at the same time so young is evidence that many large players got the initial direction wrong. Just thinking about the consequences of a Brexit is mind boggling. It will be some time before everyone is digested and the markets start to discount for the future, on top of what has already happened."    Business Of Finance on Facebook, 24 June 2016

"By now everyone should have caught up to the titanic events that have transpired overnight. The UK will officially leave the EU as its people have voted for. PM David Cameron will step down as leader of the Conservative Party. The entire English political construct should likely be restructured, spelling chaos for England. The world will wait and see if the UK's economy does indeed slip into a year-long recession as its leaders have warned incase of a Brexit (which has now happened). The pound sterling has crashed to a 30-year low against the dollar, posting its largest single day loss ever... So and and so forth.

As a result of this once unfathomable scenario, global markets (especially European ones) are in deep turmoil and a state of frenzied panic. For instance, the EuroStoxx 50 equity index gapped lower 9% at the European open, the largest single day loss ever (intraday). German bund yields have collapsed to record lows, with the 10-year yield hitting -0.17%, down -26bp from the day's open; this is an insane decline by any measure, and is especially large for zero or negative yielding bonds.

Flight to safety is the dominant theme currently. Capital is flowing out fast and furious from UK assets (stocks, bonds, cash) as British stocks, bonds (including government gilts), and the pound have crashed. Said capital has been rotating into the 'super safe' core European assets of Germany, Austria, and Switzerland. Capital has also been rotating into safe haven currencies and financial assets such as JPY, CHF, USD (to a much smaller extent), gold (precious metals in general), Bitcoin (yes, even digital virtual currencies), Japanese government bonds and the like.

Risk aversion will likely persist until some semblance of stability is achieved in the UK, we feel. Already, many analysts are putting our outrageous numbers and forecasts for the UK (macro economic, financial, financial assets ect...), and also the EU in general. 1.2-1.3 seems to be the consensus for GBPUSD on the conservative side. The scariest thing to all this is how the market totally misread reality leading up to the actually referendum, choosing to buy into opinion polls and bookkeepers' odds which both suggest that a 'remain' vote will win with some good margin.

In fact, the markets continued to discount for this assumption (which we know is totally wrong in hindsight) right up to the release of the first vote counts after the ballots closed at 2pm EST on Thursday. It was only until a few key municipals reported counts which were significantly in favor for 'leave' and hugely off consensus forecasts, that the financial markets really started to reverse their wrong course of action and actually trade in the logically right direction.

Such is our notion in brief — markets likely have much more to go on their current anti-UK trends. The fact that these moves were so huge but at the same time so young is evidence that many large players got the initial direction wrong. Just thinking about the consequences of a Brexit is mind boggling. It will be some time before everyone is digested and the markets start to discount for the future, on top of what has already happened."

Business Of Finance on Facebook, 24 June 2016

  "IT'S OFFICIAL: UK VOTES TO LEAVE THE EU    Wow! What a bombshell of a night. From opinion polls coming out early to say how the 'remain' camp will most likely win, and the totally farcical bookkeepers assigning 70% odds for a Bremain & 17% odds for a Brexit, we have come a long way dealing with nonsensical commentary and punditry, and most definitely dealing with all time record extremes when it comes to market movements and volatility across all asset classes.    We are quite honestly a tad neurotic to whatever has happened in the last 12 hours. Hundreds of billions have been lost and made in the frenzy we saw. Many records have been set, but those aren't as important as the one thing that really matters - Brexit has really happened.    Expect a incessant deluge of post-analysis from just about everyone (banks, hedge funds, money managers, political commentators, politicians, political parties, corporations, billionaire investors, fringe bloggers and writers including us, tabloids, analysts...).    But for now, one of the most intense bouts of risk aversion we've ever seen in our 10 years being in the financial markets. Initial word is for GBPUSD to trade at 1.20-30, some 600 pips lower than where we are right now. The ramifications of a Brexit cannot be undermined, and we've already gotten rumors that The Netherlands will not contemplate holding a referendum too on their EU membership.    Much much more to come, stay tuned. But for now, we're done for the day!"    Business Of Finance on Facebook, 24 June 2016

"IT'S OFFICIAL: UK VOTES TO LEAVE THE EU

Wow! What a bombshell of a night. From opinion polls coming out early to say how the 'remain' camp will most likely win, and the totally farcical bookkeepers assigning 70% odds for a Bremain & 17% odds for a Brexit, we have come a long way dealing with nonsensical commentary and punditry, and most definitely dealing with all time record extremes when it comes to market movements and volatility across all asset classes.

We are quite honestly a tad neurotic to whatever has happened in the last 12 hours. Hundreds of billions have been lost and made in the frenzy we saw. Many records have been set, but those aren't as important as the one thing that really matters - Brexit has really happened.

Expect a incessant deluge of post-analysis from just about everyone (banks, hedge funds, money managers, political commentators, politicians, political parties, corporations, billionaire investors, fringe bloggers and writers including us, tabloids, analysts...).

But for now, one of the most intense bouts of risk aversion we've ever seen in our 10 years being in the financial markets. Initial word is for GBPUSD to trade at 1.20-30, some 600 pips lower than where we are right now. The ramifications of a Brexit cannot be undermined, and we've already gotten rumors that The Netherlands will not contemplate holding a referendum too on their EU membership.

Much much more to come, stay tuned. But for now, we're done for the day!"

Business Of Finance on Facebook, 24 June 2016

Live vote tracking below

FINAL UPDATE: UK VOTES FOR BREXIT

BREXIT VOTE-LEAVE HAS WON MORE THAN 16.784 MLN VOTES, ENOUGH TO GUARANTEE VICTORY IN EU REFERENDUM - BBC FIGURES

UPDATE: 1127PM EST

BREXIT VOTE-REMAIN ON 10.886 MLN VOTES, LEAVE ON 11.590 MLN AFTER MORE THAN TWO THIRDS OF VOTES COUNTED - ITV

UPDATE: 1127PM EST

BREXIT VOTE-REMAIN ON 10.886 MLN VOTES, LEAVE ON 11.590 MLN AFTER MORE THAN TWO THIRDS OF VOTES COUNTED - ITV

UPDATE: 1121PM EST

BREXIT VOTE - IMPLIED PROBABILITY OF LEAVE VOTE IN EU REFERENDUM AT 94 PERCENT - BETFAIR ODDS

UPDATE: 1042PM EST

BREXIT VOTE-REMAIN ON 48.7 PCT, LEAVE ON 51.3 PCT AFTER HALF OF 382 COUNTING AREAS PLUS PARTIAL BBC NORTHERN IRISH FIGURES - REUTERS CALCULATION

UPDATE: 1033PM EST

BREXIT VOTE-REMAIN ON 48.7 PCT, LEAVE ON 51.3 PCT AFTER 171 OF 382 COUNTING AREAS PLUS PARTIAL BBC NORTHERN IRISH FIGURES - REUTERS CALCULATION

UPDATE: 1030PM EST

BREXIT VOTE-REMAIN ON 48.8 PCT, LEAVE ON 51.2 PCT AFTER 160 OF 382 COUNTING AREAS PLUS PARTIAL BBC NORTHERN IRISH FIGURES - REUTERS CALCULATION

UPDATE: 1023PM EST

BREXIT VOTE-REMAIN ON 48.9 PCT, LEAVE ON 51.1 PCT AFTER 150 OF 382 COUNTING AREAS PLUS PARTIAL BBC NORTHERN IRISH FIGURES - REUTERS CALCULATION

UPDATE: 1016PM EST

BREXIT VOTE-REMAIN ON 49.6 PCT, LEAVE ON 50.4 PCT AFTER 132 OF 382 COUNTING AREAS PLUS PARTIAL BBC NORTHERN IRISH FIGURES - REUTERS CALCULATION

UPDATE: 1006PM EST

BREXIT VOTE-REMAIN ON 50.1PCT, LEAVE ON 49.9 PCT AFTER 110 OF 382 COUNTING AREAS PLUS PARTIAL BBC NORTHERN IRISH FIGURES - REUTERS CALCULATION

UPDATE: 954PM EST

BREXIT VOTE-REMAIN ON 50.5 PCT, LEAVE ON 49.6 PCT AFTER 90 OF 382 COUNTING AREAS PLUS PARTIAL BBC NORTHERN IRISH FIGURES - REUTERS CALCULATION

UPDATE: 942PM EST

BREXIT VOTE-REMAIN ON 51.3 PCT, LEAVE ON 48.7 PCT AFTER 75 OF 382 COUNTING AREAS PLUS PARTIAL BBC NORTHERN IRISH FIGURES - REUTERS CALCULATION

UPDATE: 936PM EST

BREXIT VOTE-REMAIN ON 51.0 PCT, LEAVE ON 49.0 PCT AFTER 65 OF 382 COUNTING AREAS PLUS PARTIAL BBC NORTHERN IRISH FIGURES - REUTERS CALCULATION

UPDATE: 928PM EST

BREXIT VOTE-REMAIN ON 50.6 PCT, LEAVE ON 49.4 PCT AFTER 48 OF 382 COUNTING AREAS PLUS PARTIAL BBC NORTHERN IRISH FIGURES - REUTERS CALCULATION

  "The carnage, as Brexit is now almost a certainty...     All equity indexes down majorly with EM, European, and UK hit hardest. FTSE 100 -7% implied open, SPX -4.8%    Tokyo Stock Exchange halted for 10 mins after circuit breakers tripped due to excessive intraday volatility. Resumes trading marginally higher but still down 6% on the day    Japan's Finance Ministry hold emergency press conference, declines to comment if it will intervene in FX markets yet, but made it clear BoJ has the ability to contain financial market shocks via FX mechanisms    Cable (GBPUSD) down -1,700 pips since day's highs of 1.5000, biggest daily drop on record, and lowest since 1985. GBP crosses such as GBPCHF, GBPJPY hit very hard, but latter contained downside due to Japan's emergency meeting stoking fears of central bank intervention to suppress surge in yen    Gold explodes more than +8% on the day, rockets from daily lows of 1250 to 1354 at last check. Precious metals very bid on flight to safety    DM bond yields (ex. UK Gilts) fall to new record lows, curves flatten majorly, negative yields go more negative. Massive flight to safety    Only short period of time before we know the final result of this extremely momentous and historic vote."     Business Of Finance on Facebook, 24 June 2016

"The carnage, as Brexit is now almost a certainty...

  • All equity indexes down majorly with EM, European, and UK hit hardest. FTSE 100 -7% implied open, SPX -4.8%
  • Tokyo Stock Exchange halted for 10 mins after circuit breakers tripped due to excessive intraday volatility. Resumes trading marginally higher but still down 6% on the day
  • Japan's Finance Ministry hold emergency press conference, declines to comment if it will intervene in FX markets yet, but made it clear BoJ has the ability to contain financial market shocks via FX mechanisms
  • Cable (GBPUSD) down -1,700 pips since day's highs of 1.5000, biggest daily drop on record, and lowest since 1985. GBP crosses such as GBPCHF, GBPJPY hit very hard, but latter contained downside due to Japan's emergency meeting stoking fears of central bank intervention to suppress surge in yen
  • Gold explodes more than +8% on the day, rockets from daily lows of 1250 to 1354 at last check. Precious metals very bid on flight to safety
  • DM bond yields (ex. UK Gilts) fall to new record lows, curves flatten majorly, negative yields go more negative. Massive flight to safety
  • Only short period of time before we know the final result of this extremely momentous and historic vote."

Business Of Finance on Facebook, 24 June 2016

  "These few key points have more or less sealed the fate of the most eventful and monumental public referendum in the UK's history:     90% odds for Brexit, according to most bookkeepers    Major broadcasters including ITV & BBC project Brexit win    GBPUSD crashes to 1985 lows, largest single day drop ever, down 1,500 pips from day's highs    More than 2/3 of votes counted, Brexit leading with ~800,000 votes; this lead has been widening over the last hour     In about an hour's time, the world shall know FOR SURE if Brexit is UK's answer to the EU..."    Business Of Finance on Facebook, 24 June 2016

"These few key points have more or less sealed the fate of the most eventful and monumental public referendum in the UK's history:

  • 90% odds for Brexit, according to most bookkeepers
  • Major broadcasters including ITV & BBC project Brexit win
  • GBPUSD crashes to 1985 lows, largest single day drop ever, down 1,500 pips from day's highs
  • More than 2/3 of votes counted, Brexit leading with ~800,000 votes; this lead has been widening over the last hour

In about an hour's time, the world shall know FOR SURE if Brexit is UK's answer to the EU..."

Business Of Finance on Facebook, 24 June 2016

  "This is the new Black Friday. Nothing to add. Everything is crashing. Gold is soaring but bu not much. GBP crosses plunging more than 1,200 pips easily from day's highs. Brexit is leading as more than half of voting areas have been reported."    Business Of Finance on Facebook, 24 June 2016

"This is the new Black Friday. Nothing to add. Everything is crashing. Gold is soaring but bu not much. GBP crosses plunging more than 1,200 pips easily from day's highs. Brexit is leading as more than half of voting areas have been reported."

Business Of Finance on Facebook, 24 June 2016

  "More than 1/3 of voting areas have been declared and Brexit currently has an approximately 2% lead. Bookie 'leave' odds surge past 70%, while 'stay' odds plunge to 0% at some hosts.    SPX is crashing (not reflecting on this chart) to 2060 as are GBP crosses as we start to near half of the counts. In about 2 hours time, we should have 80-85% of the total count declared and markets should have either crashed even more, or exploded out of the hole.    Technical levels on the charts make little sense. The news flow is dominating as we speak."    Business Of Finance on Facebook, 24 June 2016

"More than 1/3 of voting areas have been declared and Brexit currently has an approximately 2% lead. Bookie 'leave' odds surge past 70%, while 'stay' odds plunge to 0% at some hosts.

SPX is crashing (not reflecting on this chart) to 2060 as are GBP crosses as we start to near half of the counts. In about 2 hours time, we should have 80-85% of the total count declared and markets should have either crashed even more, or exploded out of the hole.

Technical levels on the charts make little sense. The news flow is dominating as we speak."

Business Of Finance on Facebook, 24 June 2016

  "What a turn of events! It started with bookie Brexit odds at 11% lows, GBP rallies to highs of 1.5000 vs. USD, then results start rolling in and everything turns. Brexit odds at the bookies now averaging 45-50% (so 50-50 now, from 20-80 earlier today).    About 10% of counts have been reported and Brexit is leading with approximately 7% according to Reuters calculations.    GBPJPY (in this chart) and most other markets including equities, gold, bonds, USD are reacting extremely violently... GBPUSD just hit session lows of 1.4000 (back at last week's Jo Cox death lows), falling 1000 pips in less than 3 hours, clocking in a 700 pip crash earlier today after Sunderland reported a smashing win for 'leave'.    Again, we reiterate that we haven't see such volatility in our time in the markets. Ever. This is pretty crazy..."    Business Of Finance on Facebook, 24 June 2016

"What a turn of events! It started with bookie Brexit odds at 11% lows, GBP rallies to highs of 1.5000 vs. USD, then results start rolling in and everything turns. Brexit odds at the bookies now averaging 45-50% (so 50-50 now, from 20-80 earlier today).

About 10% of counts have been reported and Brexit is leading with approximately 7% according to Reuters calculations.

GBPJPY (in this chart) and most other markets including equities, gold, bonds, USD are reacting extremely violently... GBPUSD just hit session lows of 1.4000 (back at last week's Jo Cox death lows), falling 1000 pips in less than 3 hours, clocking in a 700 pip crash earlier today after Sunderland reported a smashing win for 'leave'.

Again, we reiterate that we haven't see such volatility in our time in the markets. Ever. This is pretty crazy..."

Business Of Finance on Facebook, 24 June 2016

  "There's just NO WAY any retail trader can trade this market right here and right now. We're watching the live charts and quotes and we've NEVER seen this level and type of volatility ever.    This chart speaks for itself. GBP crosses dumped 500+ pips (on GBPUSD alone) in less than 2 minutes from 1.48 to 1.43 after Sunderland reported a huge win for 'leave'.    As the results start to bleed in one at a time (this is the key to why trading this is almost impossible), such swings can be expected to happen each time a new count is reported. This is because no one knows the exact moments the counts will become public, and the nature of said counts.    This isn't trading. It's gambling."    Business Of Finance on Facebook, 24 June 2016

"There's just NO WAY any retail trader can trade this market right here and right now. We're watching the live charts and quotes and we've NEVER seen this level and type of volatility ever.

This chart speaks for itself. GBP crosses dumped 500+ pips (on GBPUSD alone) in less than 2 minutes from 1.48 to 1.43 after Sunderland reported a huge win for 'leave'.

As the results start to bleed in one at a time (this is the key to why trading this is almost impossible), such swings can be expected to happen each time a new count is reported. This is because no one knows the exact moments the counts will become public, and the nature of said counts.

This isn't trading. It's gambling."

Business Of Finance on Facebook, 24 June 2016

  "The markets have reacted to early indications that Bremain has won this referendum. While no official counts are yet out, it looks almost certain that the 'remain' camp will be victorious as even euroskeptic UKIP party leader Nigel Farage admitted openly that he believed "Remain will edge it out".    Naturally, GBP crosses are flying, taking out stops wth GBPUSD touching 1.5000 briefly, now up close to 1,000 pips since the killing of MP Jo Cox last Thursday. Stocks are absolutely surging as hedges are lifted wth great speed, sending the Dow well above 18,000 post the U.S. close, and S&P 500 over 2,020. European equity futures are the top performers with the DAX30 taking our 10,300 at last check. Gold is slumping as safety trades are no longer attractive and make little sense to be bid now that the biggest uncertainty for the markets has been resolved. Yields are rising, but not as much as gold and other safe haven assets are crashing.    Again, more to come as we get to speed with events..."    Business Of Finance on Facebook, 24 June 2016

"The markets have reacted to early indications that Bremain has won this referendum. While no official counts are yet out, it looks almost certain that the 'remain' camp will be victorious as even euroskeptic UKIP party leader Nigel Farage admitted openly that he believed "Remain will edge it out".

Naturally, GBP crosses are flying, taking out stops wth GBPUSD touching 1.5000 briefly, now up close to 1,000 pips since the killing of MP Jo Cox last Thursday. Stocks are absolutely surging as hedges are lifted wth great speed, sending the Dow well above 18,000 post the U.S. close, and S&P 500 over 2,020. European equity futures are the top performers with the DAX30 taking our 10,300 at last check. Gold is slumping as safety trades are no longer attractive and make little sense to be bid now that the biggest uncertainty for the markets has been resolved. Yields are rising, but not as much as gold and other safe haven assets are crashing.

Again, more to come as we get to speed with events..."

Business Of Finance on Facebook, 24 June 2016

23 June (Thursday, Vote Day) 

Today is the long awaited day of reckoning, the moment of truth where everything over the last few months culminates into one of two outcomes: A vote to leave the EU, or a vote to remain in the EU. Good luck Britain!

  "The ballots have now officially been closed for an hour and it looks almost certain that 'remain' has won this historic vote. First, it was euroskeptic UKIP leader Nigel Farage who out of nowhere, tweeted that "looks like Remain will edge it", admitting that there will be no Brexit.    Below are what we currently know:     SkyNews reports 82.3% turnout (a very high turnout rate, putting Bremain in favor)    YouGov post-vote poll of 5,000 previously polled people show 52% 'remain' and 48% 'leave'     The result? GBPUSB above 1.5000 (crosses are soaring, now up more than 6% since last week's lows). SPX well above 2020 as global stocks soar. Much more to come as we catch up on the action..."    Business Of Finance on Facebook, 24 June 2016

"The ballots have now officially been closed for an hour and it looks almost certain that 'remain' has won this historic vote. First, it was euroskeptic UKIP leader Nigel Farage who out of nowhere, tweeted that "looks like Remain will edge it", admitting that there will be no Brexit.

Below are what we currently know:

  • SkyNews reports 82.3% turnout (a very high turnout rate, putting Bremain in favor)
  • YouGov post-vote poll of 5,000 previously polled people show 52% 'remain' and 48% 'leave'

The result? GBPUSB above 1.5000 (crosses are soaring, now up more than 6% since last week's lows). SPX well above 2020 as global stocks soar. Much more to come as we catch up on the action..."

Business Of Finance on Facebook, 24 June 2016

For those short on time, the Guardian has compiled a comprehensive guide, highlighting the key junctures on the Brexit referendum-day timeline:

10PM GMT (5PM EST)

Polls will close, and on election nights this is normally the moment broadcasters show their exit polls and make their projection for the night ahead.

However, that won’t happen this time as there’s no exit poll for this referendum. Some banks are said to have commissioned private exit polls, but they will be kept for their employees.

So if anyone tells you they know what’s going to happen at this stage, they’re a chancer, unless they are an eagle-eyed watcher of sterling derivative markets. Sky News has commissioned a survey from YouGov of people previously polled, asking how they voted on the day. This will be released at 10pm, but this is not, repeat not, an exit poll and shouldn’t be treated like one.

1230AM GMT (730PM EST)

The voting is done by 380 council areas, not by constituencies, so it will play out slightly differently from election night. Sunderland (always the first in a general election) and Wandsworth are expected to declare first, and we can learn a bit from their results, depending on whether either campaign does better or worse than expected.

Wandsworth should have a very strong remain showing, with Sunderland showing a narrower lead for Brexit, about 55-60%. Anything lower than that for Brexit will be a great start for remain campaigners.

The City of London is expected to be among the first as well, declaring around 12.45am and likely to show a substantial lead for remain. The remain vote is likely to look high in the early hours of the morning. If it doesn’t, that’s a big problem for in campaigners.

1AM GMT (8PM EST)

Gibraltar and the Isle of Scilly will have high remain votes, but the voter numbers aren’t exactly huge. More telling will be results from Salford and Stockport, which will start to give us a sense of whether Labour’s safe seats in northern England are as pro-leave as has been predicted. That conversation could dominate the punditry for an hour or so.

Another to watch is Swindon, where leave will hope for a win, but a chunk of middle-income voters in their early- to mid-30s in the area – natural David Cameron voters – might push it towards remain.

Hartlepool, a leave heartland, is expected to declare during the hour, as is Merthyr Tydfil, which should also show a lead for leave.

Northern Irish results should start coming in, which will be interesting as there’s been very limited polling in the area. Most areas in Belfast should declare during the hour and instinct would suggest a remain lead, over concerns about the border crossing.

2AM GMT (9PM EST)

This hour is a good time to start concentrating, so put some coffee on.

Westminster, Wandsworth, Ealing and Oxford may give remain the lead here. These are likely to be very safe areas for a remain vote, with high numbers of graduates and younger voters.

We’ll also start to see a number of Scottish results rolling in, from Shetland, East Ayrshire and Angus. If these show only a weak lead for remain, it might be time for Cameron to worry.

Key Welsh boroughs to watch are Blaenau Gwent and Neath Port Talbot, where the opposite is true: Vote Leave will want a good win here, especially in the area troubled by the steel crisis, which Brexit campaigners have linked to the EU.

Castle Point, a key Eurosceptic area in south Essex, will declare around 2.30am. About 70% of voters are in favour of leaving the EU.

Crawley in West Sussex, a bellwether seat in the general election and also likely to be pretty evenly split at the referendum, is also due to declare, as is South Norfolk, where the split should also be telling.

According to JPMorgan's analysis, commissioned for investors, even if leave ultimately ends up victorious, the remain camp is likely to be in the lead until about 3am. If leave has a total vote share of about 40-45% at this stage, Stronger In will be celebrating.

But if that percentage for leave is more like 45-50%, it will be a very close run thing. Anything higher than that is an indication of a good night to come for Boris Johnson and Nigel Farage. Still, pundits are unlikely to call the race this early.

3AM GMT (10PM EST)

Boston in Lincolnshire, where 68% of voters are predicted to be in favour of Brexit, is likely to declare now. Cambridge, one of the strongest remain cities in the country, will declare here, though surrounding Cambridgeshire is very much out-land. Jeremy Corbyn’s distinctly Europhile constituency, Islington, will also declare during the hour.

Look out here for West Oxfordshire, home to David Cameron’s Witney constituency, so the result will be symbolic of something or other.

4AM GMT (11PM EST)

Time to hear from Tendring – home of Ukip’s only MP, Douglas Carswell, who represents Clacton – which is unsurprisingly one of the most Euroskecptic areas of the country. Great Yarmouth and Blackpool, both Brexit heartlands, could also bump up the leave share of the vote during the hour.

Harrogate, one of the most affluent areas of North Yorkshire, will be an interesting result to watch, especially if the leave campaign does better than expected.

Once South Staffordshire, Havering and Gravesham, all strong leave areas, are counted, the running tally should give a pretty fair idea of how the overall result will look, percentage-wise. Broadcasters may start officially calling the result from now.

5AM GMT (12AM EST)

Manchester will declare by 5am, almost certainly for remain. However, by this time, about 80% of authorities are expected to have made a declaration, and it would be a huge surprise indeed if the final percentages differed greatly from the running tally at this hour.

Bristol, one of remain’s strongest areas and also the country’s slowest counter, will declare by about 6am, but it’s unlikely to make a massive difference.

7AM GMT (2AM EST)

The official result should be in by now – unless there are substantial recounts needed and it is close – and Jenny Watson, who chairs the Electoral Commission, will announce the final tallies in Manchester.

Below, we also outline the most important must-knows about today's referendum. We use information from the official Electoral Commission, Open Europe, Reuters, and Deutsche Bank as our sources.

When will results come?

  • Votes will be counted by hand, starting as soon as polls close at 2100 GMT.
  • Each of 382 local counting areas will tally the number of ballot papers cast and announce local turnout figures (including spoiled ballots and postal votes) in each of the areas. The Electoral Commission has estimated that most turnout announcements at counting-area level will come between 2230 on June 23 and 0130 on June 24. The last turnout figure is expected at around 0400.
  • Each area will count the votes and announce totals for REMAIN and LEAVE. The majority of counting areas are expected to declare between around 0100 and 0300 on June 24. The last declaration is expected around 0600.
  • Local totals will be collated into totals for 12 regions, and then a final, national, result. The final result will be announced in Manchester by Jenny Watson, Chief Counting Officer.
  • The first results are expected around 0030 (Sunderland first perhaps) with 50% likely available by 0400 and 80% by 0500. The chart below shows the likely cumulative percentage declaration by time.
 Chart courtesy of Deutsche Bank

Chart courtesy of Deutsche Bank

When can people vote?

  • Polling stations open at 0600 on June 23 and close at 2100.

About the local counting areas

  • The counting areas, based along the lines of local government authorities, vary widely in population. The biggest counting areas are Birmingham, Leeds and Northern Ireland.
  • The Birmingham area has around 700,000 eligible voters while the City of London counting area, comprising the central financial district of the capital, has just 7,000 eligible voters. The smallest counting area is the Isles of Scilly which has about 1,700 voters.
  • Estimated time of declarations in the bigger areas: Northern Ireland around 0030, Birmingham around 0330, Leeds around 0400, Glasgow around 0400, Sheffield around 0330, Cornwall around 0230 to 0300, Bradford around 0200, Durham around 0130, Manchester around 0400 and Edinburgh around 0300 to 0400).
  • London's counting areas are along the lines of the city's 32 boroughs.

What to look out for

  1. Turnout could be key to the result but only partial figures will be available initially. Turnout at last year's British parliamentary election was 66 percent. Turnout well below this is likely to favour Leave as those who back Brexit are considered more likely to vote, according to campaigners on both sides.
  2. First results. Sunderland, likely to be one of the first results to declare (2330), has a large number of older, lower income voters who polls show are more likely to back Brexit. If Leave are not strongly ahead here it may indicate they will struggle to break through in areas less favourable to Brexit.
  3. Geography. Leave is expected to do well in eastern England, so close results in some of the most eurosceptic areas such as Southend-on-Sea (0200) and Castle Point (0130) could give an indication the national vote has swung towards Remain.
  4. Labour voters. Opposition Labour Party supporters are considered key to securing a Remain vote so the results of traditional Labour strongholds such as the north of England and south Wales, where backing for the anti-EU UK Independence Party has risen, will be closely watched.
    Early declarations in such areas include Oldham (0000) and Salford (0030) in northern England and Merthyr Tydfil (0030) in Wales.
  5. Scotland. Scotland is considered to be pro-EU, so any close early results from Scotland such as Stirling (0030) could indicate trouble for the Remain camp.
  6. Swing seats. Nuneaton (0100) is considered a bellwether seat in parliamentary elections so will be watched to see if Prime Minister David Cameron has managed to get swing voters who last year backed his Conservatives to turn out for Remain.
  7. Count chronology. Some research has indicated Remain could be well ahead at first and that from around 0300 to 0400 the Brexit count is less likely to deviate from the end results. Others, as the Open Europe think tank, have suggested that by about 0330 most of strongest Leave areas will have declared so if Leave do not hold the lead or even if it is very close, it may bode badly for them. Ron Johnston, a professor of geography at the University of Bristol who has researched the counting areas and modelled how the vote could unfold, said the big picture was that the figures could flip around until about 0300.

Turnout

  • The number of voters in each area is compiled before counting. So we should get an idea on turnout before the first results (perhaps due at around 0030 Friday). The UK Electoral Commission has estimated that most will come through between 2330 to 0230.
  • A low turnout number could therefore favour them. The last General Election (May 2015) saw a 66% turnout but the Scottish referendum saw 85%. The 1975 EEC UK referendum saw just under 65%. It’s impossible to work out at what number the pendulum shifts in favour of ‘remain’ (if indeed it does) but maybe last year’s General Election is a baseline figure.

Will there be an exit poll?

  • There are no plans by broadcasters for an exit poll as the margin of error is deemed too large, but there have been reports that some hedge funds may have commissioned private polls which could affect markets.
  • Details of a telephone poll conducted before the voting by Ipsos MORI for the Evening Standard newspaper are expected to be published during the day. The findings of a YouGov poll, based on interviews conducted online on Thursday, are due to be announced by Sky News after the close of voting at 2100.

The question 

  • Voters will be given one piece of paper with the question: "Should the United Kingdom remain a member of the European Union or leave the European Union?" They will be asked to put a cross beside either - "Remain a member of the European Union" or "Leave the European Union".

Who can vote?

  • The electoral commission says 46.5 million people can vote, including all those who are entitled to vote in a UK parliamentary election. Voters include British citizens 18 and older who are residents in Britain, and those who live abroad if they have appeared on a parliamentary voter register in the last 15 years.
  • Citizens of Ireland and countries of the Commonwealth of mostly former British colonies can also vote if they live in Britain, but citizens of other EU countries who live in Britain cannot. Voting will also take place in Gibraltar, the British overseas territory on the coast of Spain.

Can the count and vote be challenged?

  • This is unlikely. The electoral commission says the rules do not provide for a national recount under any circumstances. Requests for local recounts can be made at the local level, to be decided by the counting officer.
  • "We expect local recounts to be granted if a specific issue has been identified with the process in that counting area, rather than simply when the local totals are close," the commission says.
  • The only way to challenge the national referendum result is by judicial review, which must be requested within six weeks of the certification of the result.
  "To put Brexit into perspective, the only 2 comparable events where volatility had been higher was during Black Monday in 1992 (where the BoE withdrew the pound from a European exchange rate system) and during the Great Recession and global financial crisis of 2008 (as shown in the extreme left of this chart).    In our previous post, we stated that GBP vol has decline substantially going into the Brexit referendum. However, we questioned if the unending of downside hedges was premature since the results of the referendum are still not yet known.    Broadening our view, FX volatility in general has been elevated for the entirety of 2016 thanks to the potent combination of central bank (monetary policy) activity, macro economic events, and of course Brexit, which we are currently contending with.    It will be a long, nail biting, and most definitely sleepless night for FX traders. Surely worthy of historic mention."    Business Of Finance on Facebook, 24 June 2016

"To put Brexit into perspective, the only 2 comparable events where volatility had been higher was during Black Monday in 1992 (where the BoE withdrew the pound from a European exchange rate system) and during the Great Recession and global financial crisis of 2008 (as shown in the extreme left of this chart).

In our previous post, we stated that GBP vol has decline substantially going into the Brexit referendum. However, we questioned if the unending of downside hedges was premature since the results of the referendum are still not yet known.

Broadening our view, FX volatility in general has been elevated for the entirety of 2016 thanks to the potent combination of central bank (monetary policy) activity, macro economic events, and of course Brexit, which we are currently contending with.

It will be a long, nail biting, and most definitely sleepless night for FX traders. Surely worthy of historic mention."

Business Of Finance on Facebook, 24 June 2016

A long and sleepless night awaits global FX traders as we await the results of this historical vote. Expect the expected, and also the unexpected. There is so much going on that anything can turn on a dime. There is also little precedent for traders to look back on for guidance. 

Bloomerg writes about how London traders are preparing for this historical event. Camping overnight at offices, overdoses of caffeine, and hundreds of billions of dollars waiting for a trigger, any trigger:

Sleepless in the City Lets Traders Bet Billions on Brexit Result

Enda Homan is going to pull an all-nighter -- and he can hardly wait.

The senior foreign-exchange trader at Allied Irish Banks Plc in Dublin will be glued to his screens through dawn as U.K. voters decide whether to stay in the European Union. It promises to be a record-setting evening, whether in terms of trading volatility or in gallons of coffee consumed.

"It is a unique opportunity for traders, probably not seen since 1992 Black Wednesday,” he said, referring to the September day when the U.K. government withdrew the pound from a European exchange-rate system. Sustenance will probably consist of Chinese noodles from the local deli, and “I will also make sure that there is plenty of freshly brewed coffee to get us through the quiet bits while awaiting the results.”

Across Europe, traders and their employers are making preparations for a big night. JPMorgan Chase & Co. has booked hotel rooms near its Canary Wharf offices, while Barclays Plc is bringing in sleeping bags and sending some employees home today so they can be fresh later on. Other banks are offering bunk beds, sushi and pizza. Everybody has coffee on the menu.

"All the trading desks are in war-preparation mode," said Frederic Ponzo, managing partner at GreySpark Partners, a financial consulting firm, in London. "Volatility is expected to spike up potentially more than during the Swiss unpeg event and volumes to potentially overwhelm them and their systems." Trading was frenzied and orders delayed last year when the Swiss National Bank suddenly removed its cap on the franc.

With polls showing a tight contest, traders will be poised to push the buy or sell buttons as early results become known in the wee hours of Friday morning. Because foreign exchange is the only major market that trades 24 hours a day, they won’t be able to afford to miss a second: Aite Group LLC says profits or losses could reach hundreds of millions of dollars in a market subject to wild disruptions.

It will be a wild time for sterling: depending on how the vote goes, the pound will either sink to the lowest level in more than three decades or climb toward the highest this year, according to a Bloomberg survey of economists. In the run-up to the referendum, global stocks and currencies swung between gains and losses. The pound’s volatility surged to the highest since 2008 when the lead in opinion polls fluctuated between the "Leave" and "Remain" campaigns.

About $140 billion in cash is waiting to be invested, according to Barclays, and investors’ holdings of cash are the highest since 2001, according to a Bank of America survey.

"Much of the frantic last-minute activity will take place in the hour or two before the early results emerge, meaning that U.K. bank staff will work closely with their counterparts in Asia -– the open market at the time -– to roll or adjust whatever hedge needs to be maintained," said Javier Paz, a senior analyst at Boston-based consulting firm Aite Group.

Equity traders too will be in early, long before the exchange opens at 8 a.m. London time.

“The whole team is coming in at 2 a.m., when we’re likely to start to get a feel for the outcome,” said Ben Kumar, an investment manager at Seven Investment Management in London who helps oversee the equivalent of about $15 billion. “It’s partly curiosity -- we’d all be up all night anyway. We need to make sure that there’s a company message that we get out to our clients, that we are prepared for client calls and have something concrete to say.”

Even some who aren’t going to be at the office plan to monitor the results in real time.

"I personally plan to stay up all night” watching market reaction to have context for the trading day, said Gordon Shannon, a London-based money manager at TwentyFour Asset Management. "My wife had a baby last year so I have plenty of experience being up all night. I don’t think I’ll need much more than a coffee."

Hamburger Night

But for those facing an all-nighter at Royal Bank of Scotland Group Plc in London, fast food could be their main nourishment.

"We will have research and trading coverage and there’s a 24-hour McDonald’s across the road," said Ross Walker, a senior economist at RBS.

Results are scheduled to come in through the night, with the Press Association estimating the first at about midnight local time. By 3:30 a.m., it predicts, more than half of the vote will have been tallied and the ballot count will be completed by 7 a.m.

Some traders, such as Mark Dowding, a London-based partner at Royal Bank of Canada’s BlueBay Asset Management LLP, are still weighing staying up all night.

"You need fresh energy to make sound investment decisions the day after the vote,’’ he said.

In Scandinavia, where this is the week of the midnight sun, things are a little more relaxed.

Danes, for instance, are celebrating Sankt Hans, or Saint John’s, Eve. Aurelija Augulyte, a strategist at Nordea Bank AB in Copenhagen, plans to head off to a bonfire beach party for a few hours before coming back to the office at about 5 a.m. Still, she’ll be in charge of Brexit coverage as it’s a holiday in Finland and Sweden, she said.

What can you do when your market is closed? Go on vacation. Joe Tracy, head of continental European equities at Svenska Handelsbanken AB in Stockholm, will leave Friday.

“My personal view is there will be a Brexit, but that day I will be starting my vacation on my way to New York,” said Tracy, who is in charge of all the bank’s Nordic equity sales to continental European clients. “In Sweden, the markets are closed. It’s the mid-summer’s eve party. Midsummer’s eve is one of our largest annual celebrations.”

  "As reported earlier, GBP vol premiums have collapsed following the ramp higher in GBP crosses since the start of this week. 1-week implied volatility for GBP futures have fallen from 47 at the start of the weak to 31 currently. Interesting to note that even though GBPUSD was already rallying hard since late Thursday last week, corresponding vol only peaked on Monday; maybe hedges only started to cover later on.    It remains to be seen if this unwinding of protective puts was premature. We'll find out in a few hours when vote results start to surface."    Business Of Finance on Facebook, 24 June 2016

"As reported earlier, GBP vol premiums have collapsed following the ramp higher in GBP crosses since the start of this week. 1-week implied volatility for GBP futures have fallen from 47 at the start of the weak to 31 currently. Interesting to note that even though GBPUSD was already rallying hard since late Thursday last week, corresponding vol only peaked on Monday; maybe hedges only started to cover later on.

It remains to be seen if this unwinding of protective puts was premature. We'll find out in a few hours when vote results start to surface."

Business Of Finance on Facebook, 24 June 2016

The WSJ published a good article about how political polarization will likely flare up irregardless of today's referendum outcome. We mostly agree on the points made:

‘Brexit’ Vote Will Change Europe, No Matter the Outcome

If the U.K. decides in Thursday’s referendum to leave the European Union, it would shake the continent to its political foundations. Even if it stays, the bloc may never be the same.

A decision to leave, which would be a first by a member nation, would deepen the crisis facing a continent already struggling with economic weakness, debt problems, large-scale migration and growing geopolitical instability to its south and east.

The referendum, at a minimum, has delivered a shock to Europe’s political classes, calling into question what some had once regarded as an inevitable march toward a federal EU.

“Obsessed with the idea of instant and total integration, we failed to notice that ordinary people, the citizens of Europe, do not share our Euro-enthusiasm,”European Council President Donald Tusk observed in a speech in late May.

“The specter of a breakup is haunting Europe, and a vision of a federation doesn’t seem to me like the best answer to it.”

  "Britons woke up to some nasty weather this Thursday morning as they head out to vote on the EU referendum. Up to 300 "999" calls were made in the prior night reporting on lightning and flooding. As can be seen in the montage of pictures, the floods are indeed quite bad and might lower turnout rates slightly as people become discouraged as they have to get wet (literally) to vote..."    Business Of Finance on Facebook, 23 June 2016

"Britons woke up to some nasty weather this Thursday morning as they head out to vote on the EU referendum. Up to 300 "999" calls were made in the prior night reporting on lightning and flooding. As can be seen in the montage of pictures, the floods are indeed quite bad and might lower turnout rates slightly as people become discouraged as they have to get wet (literally) to vote..."

Business Of Finance on Facebook, 23 June 2016

  "Voting day has started with the pound sterling exploding to fresh 2016 highs as the market is now firmly in the belief that Brexit will never happen. However markets have come to the conclusion that a 'remain' vote will prevail at the end of Thursday (final referendum results should be out Friday morning BST), it definitely has to do with the most recent opinion polls which show Bremain leading across most pollsters. The story is even more towards Bremain at the bookies with odds for a Brexit slumping to 17% lows just this morning...    The explosion in GBP has lifted all boats. Risk assets have rallied dramatically from their "Dead Cox bounce" last week. As GBP vol premium decays, the re-risking trade seems to be roaring ahead. But frankly, no one will know for sure what the final results will be until they're announced.    As more and more turnout data and post-voting poll data by pollster YouGov surfaces, expect crazy volatility and the market to get even more unidirectional (as if it isn't already)."    Business Of Finance on Facebook, 23 June 2016

"Voting day has started with the pound sterling exploding to fresh 2016 highs as the market is now firmly in the belief that Brexit will never happen. However markets have come to the conclusion that a 'remain' vote will prevail at the end of Thursday (final referendum results should be out Friday morning BST), it definitely has to do with the most recent opinion polls which show Bremain leading across most pollsters. The story is even more towards Bremain at the bookies with odds for a Brexit slumping to 17% lows just this morning...

The explosion in GBP has lifted all boats. Risk assets have rallied dramatically from their "Dead Cox bounce" last week. As GBP vol premium decays, the re-risking trade seems to be roaring ahead. But frankly, no one will know for sure what the final results will be until they're announced.

As more and more turnout data and post-voting poll data by pollster YouGov surfaces, expect crazy volatility and the market to get even more unidirectional (as if it isn't already)."

Business Of Finance on Facebook, 23 June 2016

Former FX trader Richard Brewslow , writes about today's referendum and how the fastest hands will win:

Today’s Trading Is All About Blinking First

The voting has begun to decide Britain’s EU referendum. It’s raining hard and it’s hot, which makes it fortunate that the British are a hardy lot. They’ve had to be to endure a campaign where the hyperbole has been worthy of a U.S. election.

Banks left and right are warning their clients in advance that they may not have the liquidity or risk appetite to execute trades on their behalf tomorrow. I’m not sure why they’re also advising what trades to do on the outcome.

The only financial institutions who have declared themselves poised to get involved with both hands are central banks. They have their puts ready to go and are revving their transmission mechanisms. Once you get the trading bug, it’s hard to shake.

Yet for all the ambiguity, assets are going into today flying. Nothing can go wrong.

The U.K. hanging by a thread? Versus the dollar, the pound is above all its moving averages, making a new year-to-date high today. Looks awfully good against the euro, too. FTSE 100 has flown back above its moving averages and threatens a technical break-out less than one percent away.

Germany’s DAX index, for which so many obituaries were written, looks like its upward momentum is now solid and has strong technical support to lean on. I’m not sure why it wants to, but the euro is trying to ram its head once again against 1.1450 resistance to the dollar.

Not wanting to be left out, S&P 500 futures have been trading with a strong bid all day.

Price action today means nothing for where it will all be tomorrow, but it does show which side fears it holds the weaker hand. And the trades required to get square. Poker is a fascinating game.

  "The poll that seals the Brexit fate? The latest and final YouGov poll released late Wednesday shows Bremain in the lead with 51% of the votes while Brexit has 49%. There were no undecided voters in this poll. The results were in the favor of Bremain and was a huge jump (42% to 51% since 19 June). That's all the markets were caring about, and it was definitely convincing enough to seal the deal that Brexit was not going to be voted for in the actual deal. This latest YouGov release updated the FT poll tracker results in Bremain's favor — 47% vs. 45% (was 44% vs. 45% previously).    The reason why so much emphasis is being placed on this poll is because, as Reuters reports, like in 2014 and unlike in the UK national elections, British broadcasters will not conduct exit polls in Thursday — in which people are asked as they leave polling stations how they voted — once polling closes at 10pm local time because the margin of error for an event which has little precedent is too large.    However, that same logic apparently does not prevent the very same YouGov pollster cited above, to publish a poll showing how people have voted in the European Union referendum shortly after polling stations close on Thursday. Reuters reports that "the poll will be based on responses from a pre-selected group of people seen as representative of the wider electorate on how they actually voted in the referendum. Its findings are due to be announced by Sky News soon after polling stations close at 10 p.m. (2100 GMT)."    GBP crosses are ripping across the board, risk is rallying and safety has been hit hard as it seems the market is now looking at a Bremain situation less than 8 hours before the polls open at 12pm local time Thursday."    Business Of Finance on Facebook, 23 June 2016

"The poll that seals the Brexit fate? The latest and final YouGov poll released late Wednesday shows Bremain in the lead with 51% of the votes while Brexit has 49%. There were no undecided voters in this poll. The results were in the favor of Bremain and was a huge jump (42% to 51% since 19 June). That's all the markets were caring about, and it was definitely convincing enough to seal the deal that Brexit was not going to be voted for in the actual deal. This latest YouGov release updated the FT poll tracker results in Bremain's favor — 47% vs. 45% (was 44% vs. 45% previously).

The reason why so much emphasis is being placed on this poll is because, as Reuters reports, like in 2014 and unlike in the UK national elections, British broadcasters will not conduct exit polls in Thursday — in which people are asked as they leave polling stations how they voted — once polling closes at 10pm local time because the margin of error for an event which has little precedent is too large.

However, that same logic apparently does not prevent the very same YouGov pollster cited above, to publish a poll showing how people have voted in the European Union referendum shortly after polling stations close on Thursday. Reuters reports that "the poll will be based on responses from a pre-selected group of people seen as representative of the wider electorate on how they actually voted in the referendum. Its findings are due to be announced by Sky News soon after polling stations close at 10 p.m. (2100 GMT)."

GBP crosses are ripping across the board, risk is rallying and safety has been hit hard as it seems the market is now looking at a Bremain situation less than 8 hours before the polls open at 12pm local time Thursday."

Business Of Finance on Facebook, 23 June 2016

Matthew Shaddick, head of political betting at Ladbrokes (a major UK Bookkeeper) will back Brexit if he had to put money on it. As someone actually involved in monitoring the odds (via financial bets) of this Thursday's outcome, it's interesting to learn that Bremain odds at the bookies are skewed because of big money bets rather than sheer number of bets placed.

Matthew Shaddick explains more in the Op-Ed published at the Telegraph:

If I had to put money on it, I'd back Leave

On the eve of referendum day we face a very similar scenario to last year's general election. Back then, the polling averages showed a tie between Labour and the Tories, whilst the betting markets gave the Conservatives an 80 per cent chance of being the largest party.

This time, the polling averages have it as a dead heat, yet the bookies are rating the chances of a Remain vote at 76 per cent. Of course, it's a bit of an unfair comparison; pollsters aren't paid to predict anything, just to provide a snapshot of public opinion at a given time. That's proving tricky enough, as shown by the very different results being generated by phone and online polls.

So, should we be following the money again? Maybe not: the huge rally on the financial markets and the big swing to Remain on the betting this week seem curious. Many people assumed it was anticipating some very good polling news for the Remain camp, but that didn't really happen – the recent surveys have just confirmed that this is very, very close. It's widely expected that the status quo side will improve somewhat on polling day (because that's what tends to happen in these sorts of referenda), but that factor should already have been priced in.

One interesting pattern in the betting for this vote has been that whilst 75 per cent of the money staked has been for Remain, the majority of actual bets have been for Leave. That's because the average bet stake for Remain is around £450, for Leave it's just £70.

Could that be significant? After all, this isn't like the betting on a horse race or football match; in this event the gamblers are also participants in the race, as most of them will be voters too. The problem with that theory is that the betting public are wildly unrepresentative of the electorate – for a start they are much too male, and we know that men are more likely to be Brexit supporters. Numbers of bets are not likely to be a good substitute for polling.

We also know that there is likely to be a lot of wishful thinking skewing punters' behaviour. Put simply, Remain voters are more likely to think Remain will win and vice versa. Maybe the two sides views will cancel each other out, maybe not. Even if they don't, the idea is that there are enough rational, dispassionate investors in the markets who will correct any such bias, resulting in odds that are an objective assessment of the probabilities.

The truth is, we don't really have enough evidence to be sure how predictive political betting markets really are. It's only in recent years that we've seen the sort of big, liquid, multi-million pound events that could produce anything worth studying. As an example, Ladbrokes took ten times more money on the 2015 general election as we did in 2005.

If I were having a bet today, I think I'd back Leave at 3/1. I still think Remain are the more likely winners, but there's enough uncertainty in this vote to make me think the outsiders have a better chance than the odds imply.

  "A funny twist to the Brexit scene less than 24 hours from D-Day. GBP now trades based on how the weather over England is forecasted to be on Thursday. You got that right, the market now moves on the weather. Things have gotten so desperate that both human and algo traders are trigger happy on any and every remotely related new flash.    Wednesday actually started out rather docile with GBP in a strays ascend during the Asian hours. Volatility and trading volume spiked as Europe opened and GBPUSD peaked at its intraday highs (also the weekly highs thus far) before rolling sharply lower as the U.S. session started. As depicted, the weather apparently made all the difference (sarcasm).    More seriously, the latest Opinium polls show Brexit leading only by 1% at 45% vs. Bremain at 44%; the former gaining a percentage point since last poll."    Business Of Finance on Facebook, 23 June 2016

"A funny twist to the Brexit scene less than 24 hours from D-Day. GBP now trades based on how the weather over England is forecasted to be on Thursday. You got that right, the market now moves on the weather. Things have gotten so desperate that both human and algo traders are trigger happy on any and every remotely related new flash.

Wednesday actually started out rather docile with GBP in a strays ascend during the Asian hours. Volatility and trading volume spiked as Europe opened and GBPUSD peaked at its intraday highs (also the weekly highs thus far) before rolling sharply lower as the U.S. session started. As depicted, the weather apparently made all the difference (sarcasm).

More seriously, the latest Opinium polls show Brexit leading only by 1% at 45% vs. Bremain at 44%; the former gaining a percentage point since last poll."

Business Of Finance on Facebook, 23 June 2016

22 June (Wednesday, T-1 Day) 

  "With less than two days until the outcome of the Brexit referendum, traders around the world know two things:     In a scene reminiscent of Lehman Sunday, everyone will be ready to trade the nanosecond the first results are released resulting in a supernova of volatility and an unprecedented burst in volume    Markets will simply grind to a halt as banks refuse to take risk positions and execute client orders, all bids and offers are withdrawn as the last trace of liquidity evaporates, and central banks are forced to start trading with each other in the open market     Whichever the case, expect brokers to start issuing their respective notices to clients which should consist of either higher margin requirements for GBP based securities, prohibit trading of GBP based securities altogether, or like UBS issue a warning to clients notifying them of possible illiquidity and indicative-only pricings.    In any case, we urge traders to take note of this and prepare accordingly."    Business Of Finance on Facebook, 22 June 2016

"With less than two days until the outcome of the Brexit referendum, traders around the world know two things:

  1. In a scene reminiscent of Lehman Sunday, everyone will be ready to trade the nanosecond the first results are released resulting in a supernova of volatility and an unprecedented burst in volume
  2. Markets will simply grind to a halt as banks refuse to take risk positions and execute client orders, all bids and offers are withdrawn as the last trace of liquidity evaporates, and central banks are forced to start trading with each other in the open market

Whichever the case, expect brokers to start issuing their respective notices to clients which should consist of either higher margin requirements for GBP based securities, prohibit trading of GBP based securities altogether, or like UBS issue a warning to clients notifying them of possible illiquidity and indicative-only pricings.

In any case, we urge traders to take note of this and prepare accordingly."

Business Of Finance on Facebook, 22 June 2016

  "A rather uneventful Tuesday, which is always a good thing for Brexit traders. Some news flow, not much new, Brexit odds gained slightly at the latter part of the day after falling, pressuring GBP lower. Pound crosses traded in a relatively tighter range with ups and downs. End of Tuesday saw stocks diverge higher from GBP weakness. Pretty clear that GBP has become a risk driver du jour; so for stocks to rally, pound has to be bid."    Business Of Finance on Facebook, 22 June 2016

"A rather uneventful Tuesday, which is always a good thing for Brexit traders. Some news flow, not much new, Brexit odds gained slightly at the latter part of the day after falling, pressuring GBP lower. Pound crosses traded in a relatively tighter range with ups and downs. End of Tuesday saw stocks diverge higher from GBP weakness. Pretty clear that GBP has become a risk driver du jour; so for stocks to rally, pound has to be bid."

Business Of Finance on Facebook, 22 June 2016

  "How are markets reacting to the apparent Brexit event risk which will climax in less than 2 days? Well, massive hedging at the front end of the VIX, inverting the front end of the VIX curve to the most it has been since the global stock market flash crash in August 2015.    Months of complacency beginning in February (expressed by the steepening of the curve with ultra short-term vol trading below spot) has bred great fear and anxiousness when Brexit fears started to surface and everyone who wasn't hedged started to bid for short-term protection at ever higher premiums each day, leading to an inverted VIX curve at the front end and vol premiums to spike to crisis levels.    ***    With U.S. Economic Policy Uncertainty (EPU) at current highs (see bottom pane), in the case of Brexit the U.S. EPU may rise substantially higher, pulling the VIX higher as well.    Goldman Sachs has more on the UK-US macro discrepancy and how that might affect the VIX:    "The VIX may reach the high 20’s to low 30’s if US EPU spikes. After languishing in the low teens over the past several months, last week the VIX broke through 20 for the first time since March. Given that the spread between the US and UK EPU indices is near an all-time high, in the case of a leave decision, it stands to reason that US policy uncertainty could be pulled higher. A simple back-of-the envelope calculation suggests that the current level of the UK EPU Index is consistent with an increase of 80 or so points in US EPU. Tying this back to the VIX, we arrive at VIX levels in the high 20s to low 30s."    ***    Here's how analysts and banks see markets trade should Brexit be voted for, courtesy of Bloomberg:    Morgan Stanley     Base-case index target for the FTSE 100 in case of ‘leave’     is range of 5000 to 5300; for the Euro Stoxx 50 is 2400 to 2550     BofAML     Sees European stocks moving 10% either way after Brexit vote; “leave” result would be risk-off event not just in U.K. but also Europe and, to a lesser extent, globally    Sell-off in Europe could translate into 6%-7% drop for S&P 500    “Unquantifiable risk” whether other EU countries would then attempt to leave EU    Long European low-risk dividend stocks, long SXDP index vs short SX3P index, long European index dividend futures, long MSCI EM     Goldman Sachs     On average, the ERP (equity risk premium) has risen by ~150bps in past risk-off events. If Brexit were to result in similar scenario, rise in ERP of 150bps from end-May levels would push Stoxx 600 down to 280 and Euro Stoxx 50 to 2400    Cleanest expression of Brexit risk is in U.K. domestic stocks (GSSTUKDE) and especially those with high sensitivity to investment spending     JPMorgan     In ’leave’ scenario, euro-area equities would likely underperform U.K. ones, whose relative performance would be helped by GBP weakness    Stays overweight on U.K. equities, which trade “outright cheap” on P/B metric     Citi     Given recent equity weakness, likely policy reaction, new oil price regime, base-case Brexit downside risk is ~5%; at extreme end of the outcome spectrum, European stocks could fall 10-20%    FX weakness, especially in U.K., is a key offset and should, in time, support positive U.K. returns, excluding return of full-blown systemic risk     Deutsche Bank     Sees 10% downside for European equities    Overweight FTSE, underweight DAX: if Brexit, U.K. equities would outperform European stocks, given likely GBP depreciation as well as U.K. market’s defensive sector structure     Jefferies     Sees 5%-10% decline in FTSE banks, euro-zone banks falling by at least an equivalent, if not greater percentage"    Business Of Finance on Facebook, 22 June 2016

"How are markets reacting to the apparent Brexit event risk which will climax in less than 2 days? Well, massive hedging at the front end of the VIX, inverting the front end of the VIX curve to the most it has been since the global stock market flash crash in August 2015.

Months of complacency beginning in February (expressed by the steepening of the curve with ultra short-term vol trading below spot) has bred great fear and anxiousness when Brexit fears started to surface and everyone who wasn't hedged started to bid for short-term protection at ever higher premiums each day, leading to an inverted VIX curve at the front end and vol premiums to spike to crisis levels.

***

With U.S. Economic Policy Uncertainty (EPU) at current highs (see bottom pane), in the case of Brexit the U.S. EPU may rise substantially higher, pulling the VIX higher as well.

Goldman Sachs has more on the UK-US macro discrepancy and how that might affect the VIX:

"The VIX may reach the high 20’s to low 30’s if US EPU spikes. After languishing in the low teens over the past several months, last week the VIX broke through 20 for the first time since March. Given that the spread between the US and UK EPU indices is near an all-time high, in the case of a leave decision, it stands to reason that US policy uncertainty could be pulled higher. A simple back-of-the envelope calculation suggests that the current level of the UK EPU Index is consistent with an increase of 80 or so points in US EPU. Tying this back to the VIX, we arrive at VIX levels in the high 20s to low 30s."

***

Here's how analysts and banks see markets trade should Brexit be voted for, courtesy of Bloomberg:

Morgan Stanley

  • Base-case index target for the FTSE 100 in case of ‘leave’   is range of 5000 to 5300; for the Euro Stoxx 50 is 2400 to 2550

BofAML

  • Sees European stocks moving 10% either way after Brexit vote; “leave” result would be risk-off event not just in U.K. but also Europe and, to a lesser extent, globally
  • Sell-off in Europe could translate into 6%-7% drop for S&P 500
  • “Unquantifiable risk” whether other EU countries would then attempt to leave EU
  • Long European low-risk dividend stocks, long SXDP index vs short SX3P index, long European index dividend futures, long MSCI EM

Goldman Sachs

  • On average, the ERP (equity risk premium) has risen by ~150bps in past risk-off events. If Brexit were to result in similar scenario, rise in ERP of 150bps from end-May levels would push Stoxx 600 down to 280 and Euro Stoxx 50 to 2400
  • Cleanest expression of Brexit risk is in U.K. domestic stocks (GSSTUKDE) and especially those with high sensitivity to investment spending

JPMorgan

  • In ’leave’ scenario, euro-area equities would likely underperform U.K. ones, whose relative performance would be helped by GBP weakness
  • Stays overweight on U.K. equities, which trade “outright cheap” on P/B metric

Citi

  • Given recent equity weakness, likely policy reaction, new oil price regime, base-case Brexit downside risk is ~5%; at extreme end of the outcome spectrum, European stocks could fall 10-20%
  • FX weakness, especially in U.K., is a key offset and should, in time, support positive U.K. returns, excluding return of full-blown systemic risk

Deutsche Bank

  • Sees 10% downside for European equities
  • Overweight FTSE, underweight DAX: if Brexit, U.K. equities would outperform European stocks, given likely GBP depreciation as well as U.K. market’s defensive sector structure

Jefferies

  • Sees 5%-10% decline in FTSE banks, euro-zone banks falling by at least an equivalent, if not greater percentage"
Business Of Finance on Facebook, 22 June 2016
  "Pretty much says it all doesn't it? Celebrities and superstars are now also apparently politicians. The BBC News reported on Monday that top English celebrity and Football legend David Beckham supports Bremain, and has even urged his followers to vote for the status quo.    We'll just leave it at there..."    Business Of Finance on Facebook, 22 June 2016

"Pretty much says it all doesn't it? Celebrities and superstars are now also apparently politicians. The BBC News reported on Monday that top English celebrity and Football legend David Beckham supports Bremain, and has even urged his followers to vote for the status quo.

We'll just leave it at there..."

Business Of Finance on Facebook, 22 June 2016

21 June (Tuesday, T-2 Days)

  "As expected, very choppy and volatile trading intraday in GBP crosses. Wild swings of 200 pips either way to be expected. Overnight GBPUSD sold off nearly 120 pips, only to rebound 140 pips to Tuesday's intraday highs at 1.4770, and then rolling over lower around the U.S. open on news that the 'leave' camp has gained some ground, narrowing the gap behind Bremain, according to the latest Survation poll data.    News flow is more or less the same with language from both sides getting increasingly superfluous but also more bombastic."    Business Of Finance on Facebook, 21 June 2016

"As expected, very choppy and volatile trading intraday in GBP crosses. Wild swings of 200 pips either way to be expected. Overnight GBPUSD sold off nearly 120 pips, only to rebound 140 pips to Tuesday's intraday highs at 1.4770, and then rolling over lower around the U.S. open on news that the 'leave' camp has gained some ground, narrowing the gap behind Bremain, according to the latest Survation poll data.

News flow is more or less the same with language from both sides getting increasingly superfluous but also more bombastic."

Business Of Finance on Facebook, 21 June 2016

Not every wealthy individual, influential politician, corporate figurehead, or prolific commentator with vested interests in the UK or EU will so candidly (of course not totally honestly) voice his or her opinions about Brexit. For the most case, it is fair to say that more of such people support Bremain than Brexit — inline with the general belief that the rich and wealthy prefer the continuity of the status quo, that is for the UK to remain in the EU.

Of course we sometimes come across a red herring daring to go against this pseudo-sacred flow. One such red herring is billionaire Peter Hargreaves. As the co-founder of Hargreaves Lansdown, the largest U.K. retail broker with more than $84.1bn equivalent in assets, Mr. Hargreaves is certainly a rich and wealthy individual with a lot of vested interest in Britain.

According to  a recent interview with Bloomberg, he shares why he supports Brexit and lays out some points beyond the superficial: 

Why do you support "Leave"?

Answer: Every year in the EU it gets more political, it gets more legislative, more regulative; we don’t seem to get very much benefit from it. We will be far better out.The EU as an economic mark is declining in the world, when there were only nine countries in it was 30 percent of the world's GDP, now there are 28 it is only 17 percent. That's some serious decline. Other countries that are growing — India, parts of Africa, Brazil, China and even Russia — are the places we should be trading with.

How do you counter strong economist/analyst support to remain?

Answer: There's a huge amount of vested interest, a lot people making these comments are politically motivated and also work for big banks that aren’t British. They’ve built these enormous dealing rooms and offices in the City of London and Canary Wharf and their bosses are saying we don't want to endanger this huge investment of ours. I don't think it will endanger that huge investment. You can't move the City of London to anywhere else in Europe. It's madness to suggest it. Frankfurt, the place everybody keeps talking about, only has a population of 700,000, it could not accommodate anything like the City of London. The City of London is absolutely guaranteed, it is bound to survive. The only center that could take over would be Zurich and that's not in the EU either. It's absolute drivel that the City of London will be affected. The City of London will go out and it will deal with these emerging economies in the Pacific Basin, Southeast Asia, Africa —  they're all going to want finance for different things. You can't set up the City of London anywhere else. It takes years, and during that time the City of London will have grown stronger. Any attempt at usurping it will fail.

How will London's role change?

Answer: It will become more global. There are only two global financial cities: New York and London. The fact London is no longer shackled to the EU means it will go out and deal with the rest of the world. New York is not in a great place, it is only in a great place for dealing with America and South America. The London time-zone is perfect for almost everywhere else in the world.

What will happen to the EU?

Answer: The EU will disintegrate when we leave. They will realise there is nothing left. The political union is going to be a disaster and they'll want a free-trade area. Do you know who'll be the first country invited to that free trade area? The U.K.

What happens to interest rates with a Brexit?

Answer: I don't think there'll be any change. One thing every country in the world is trying to do is get the value of their currency down. That's why interest rates are low. It is quite likely the pound will come under a bit of pressure, initially it will go down. That will be compensation for any tariffs, so the tariffs won't bother us. Not that they will instigate tariffs anyway, but any worry about it will already be compensated by the pound. The pound will become strong again, just like after we left the ERM snake under John Major. [At that time] the pound came under enormous pressure, but within 12 months was one of the strongest currencies in the world because we weren't shackled to the euro.

How will factors holding down inflation differ?

Answer: Everyone is trying to increase inflation by reducing their interest rates and reducing the value of their currencies. We don't know what the impact of us leaving will be. I can't make any suggestion on how we get the currency to the level we want and inflation to level we want until I know how markets react to us leaving the EU. It is a hypothetical question, it may do it automatically, we may have measures to take. I think there'll be a knee-jerk reaction, but afterwards there'll be calm with people realizing it is no big deal us leaving. I think everyone is going to realize it is actually going to be good for the British economy.

Would leaving the EU impact savings and investment?

Answer: I have more money in the stock market than any other person in the U.K., I have 2 billion pounds in the U.K. stock market. No one has anything like that. Do you think I would be intent on leaving if I thought that was going to endanger my wealth?

  "Brexit or Bremain come this Thursday, UK stocks are still expensive however way you look at it. As the referendum comes and goes, the markets will likely quickly parse it off as history and should eventually start to refocus on the fundamentals that are the near record high multiples and valuations that English stocks are trading on.    So regardless of this Thursday's outcome, UK stocks are hardly attractive for the value investor that objectively seals out bargains. In fact, being so high up on this scale, the risk-to-reward profile of UK stocks becomes extremely inferior as the downside risks far outstrips the potential upsides.    ***    SocGen's Andrew Lapthone comments more on this:    Global equity markets continued to struggle last week, with the MSCI World index off 1.8% pushing the index back into red for the year. Big losses were seen in Japan with the Topix 500 down 6% and the volatile Mothers index crashing 18.5% over the week as the yen continued to strengthen. According to the BOE measure, the trade-weighted yen is now up more than 20% over the past year and back to where it stood three years ago. In the battle for the weakest currency, Japan looks to have thrown in the towel.    Whatever the outcome of the Brexit vote this week investors will still be facing the prospect of negative rates and negative yields on a huge range of bonds, massive corporate leverage with worryingly rising delinquencies and of course expensive equity markets and falling profits. To that extent these political events are a distraction from the main event, weak global economic growth and perverse asset markets. So whilst the market preference for the status quo might be celebrated in the short-term, actually when the fog clears all of the problems will still be there.    Let’s take the UK for example. The market will most probably rally as it is doing today if Brexit is rejected, but rally to where? We have already highlighted the excessive leverage and payout ratios in the UK, but these are not the only problems. On a disaggregated basis, median valuations are at the upper end of historical estimates (see below), profitability whether measured on an ROE, ROA or ROIC basis has rarely been this weak outside of an economic slump, and these figures do not materially change whether the problematic commodity and financial sectors are included or not. Brexit or not, the UK equity market hardly looks healthy."    Business Of Finance on Facebook, 21 June 2016

"Brexit or Bremain come this Thursday, UK stocks are still expensive however way you look at it. As the referendum comes and goes, the markets will likely quickly parse it off as history and should eventually start to refocus on the fundamentals that are the near record high multiples and valuations that English stocks are trading on.

So regardless of this Thursday's outcome, UK stocks are hardly attractive for the value investor that objectively seals out bargains. In fact, being so high up on this scale, the risk-to-reward profile of UK stocks becomes extremely inferior as the downside risks far outstrips the potential upsides.

***

SocGen's Andrew Lapthone comments more on this:

Global equity markets continued to struggle last week, with the MSCI World index off 1.8% pushing the index back into red for the year. Big losses were seen in Japan with the Topix 500 down 6% and the volatile Mothers index crashing 18.5% over the week as the yen continued to strengthen. According to the BOE measure, the trade-weighted yen is now up more than 20% over the past year and back to where it stood three years ago. In the battle for the weakest currency, Japan looks to have thrown in the towel.

Whatever the outcome of the Brexit vote this week investors will still be facing the prospect of negative rates and negative yields on a huge range of bonds, massive corporate leverage with worryingly rising delinquencies and of course expensive equity markets and falling profits. To that extent these political events are a distraction from the main event, weak global economic growth and perverse asset markets. So whilst the market preference for the status quo might be celebrated in the short-term, actually when the fog clears all of the problems will still be there.

Let’s take the UK for example. The market will most probably rally as it is doing today if Brexit is rejected, but rally to where? We have already highlighted the excessive leverage and payout ratios in the UK, but these are not the only problems. On a disaggregated basis, median valuations are at the upper end of historical estimates (see below), profitability whether measured on an ROE, ROA or ROIC basis has rarely been this weak outside of an economic slump, and these figures do not materially change whether the problematic commodity and financial sectors are included or not. Brexit or not, the UK equity market hardly looks healthy."

Business Of Finance on Facebook, 21 June 2016

  "The latest poll results from ORB dated 21 June (Tuesday) show the 'stay' camp in the lead at 53% vs. 46% for the '"leave' camp."    Business Of Finance on Facebook, 21 June 2016

"The latest poll results from ORB dated 21 June (Tuesday) show the 'stay' camp in the lead at 53% vs. 46% for the '"leave' camp."

Business Of Finance on Facebook, 21 June 2016

  "Less than 2 days till the Brexit vote and intensity of fear mongering and campaigning has started to really heat up in earnest. Just on Monday alone, GBP crosses saw high volatility after various headlines starting that the 'stay camp' continued to gain a lead over Brexit. New pollster result came in and we also saw The Telegraph taking sides saying that it supported Brexit...    Which is ironic because the media company would then go on to publish poll details showing Bremain in the lead.    For those doubting the integrity of bookkeeper's data, the recent surge in Bremain votes is backed by a comparable decline in Brexit votes via opinions polls (i.e. changes in bookies are matched by changes in pollsters)."    Business Of Finance on Facebook, 21 June 2016

"Less than 2 days till the Brexit vote and intensity of fear mongering and campaigning has started to really heat up in earnest. Just on Monday alone, GBP crosses saw high volatility after various headlines starting that the 'stay camp' continued to gain a lead over Brexit. New pollster result came in and we also saw The Telegraph taking sides saying that it supported Brexit...

Which is ironic because the media company would then go on to publish poll details showing Bremain in the lead.

For those doubting the integrity of bookkeeper's data, the recent surge in Bremain votes is backed by a comparable decline in Brexit votes via opinions polls (i.e. changes in bookies are matched by changes in pollsters)."

Business Of Finance on Facebook, 21 June 2016

With just 2 full days to go before the referendum officially begins, the big boys have come out en masse to reign in fear amongst Britons who have even the slightest of temptations to vote for a Brexit.

These big names include legendary investor and hedge fund manager George Soros, the person who is famously referred to as the man that "broke the Bank of England" back in 1997, making a hefty $1.5bn in a couple of days by going against the BoE. Soros wrote yesterday that should the UK leave the EU, the consequences would be worse than most are preparing for. He warns that the "pound will plummet, along with living standards," and "the only winners will be speculators." It seems that Soros is going all out to ensure Brexit never happens and exists only in the figments of the imagination.

From George Soro's Op-Ed published at the guardian:

"David Cameron, along with the Treasury, the Bank of England, the International Monetary Fund and others have been attacked by the leave campaign for exaggerating the economic ri sks of Brexit. This criticism has been widely accepted by the British media and many financial analysts. As a result, British voters are now grossly underestimating the true costs of leaving.

Too many believe that a vote to leave the EU will have no effect on their personal financial position. This is wishful thinking. It would have at least one very clear and immediate effect that will touch every household: the value of the pound would decline precipitously. It would also have an immediate and dramatic impact on financial markets, investment, prices and jobs.

As opinion polls on the referend um resultfluctuate, I want to offer a clear set of facts, based on my six decades of experience in financial markets, to help voters understand the very real consequences of a vote to leave the EU.

The Bank of England , the Institute  for Fiscal Studies and the IM F have assessed the long-term economic consequences of Brexit. They suggest an income loss of £3,000 to £5,000 annually per household – once the British economy settles down to its new steady-state five years or so after Brexit. But there are some more immediate financial consequences that have hardly been mentioned in the referendum debate.

To start off, sterling is almost certain to fall steeply and quickly if there is a vote to leave– even more so after yesterday’s rebound as markets reacted to the shift in opinion polls towards remain. I would expect this devaluation to be bigger and more disruptive than the 15% devaluation that occurred in September 1992, when I was fortunate enough to make a substantial profit for my hedge fund investors, at the expense of the Bank of England and the British government.

It is reasonable to assume, given the expectations implied by the market pricing at present, that after a Brexit vote the pound would fall by at least 15% and possibly more than 20%, from its present level of $1.46 to below $1.15 (which would be between 25% and 30% below its pre-referendum trading range of $1.50 to $1.60). If sterling fell to this level, then ironically one pound would be worth about one euro – a method of “joining the euro” that nobody in Britain would want.

Brexiters seem to recognise that a sharp devaluation would be almost inevitable after Brexit, but argue that this would be healthy, despite the big losses of purchasing power for British households. In 1992 the devaluation actually proved very helpful to the British economy, and subsequently I was even praised for my role in helping to bring it about.

But I don’t think the 1992 experience would be repeated. That devaluation was healthy because the government was relieved of its obligation to “defend” an overvalued pound with damagingly high interest rates after the breakdown of the exchange rate mechanism. This time, a large devaluation would be much less benign than in 1992, for at least three reasons.

First, the Bank of England would not cut interest rates after a Brexit devaluation (as it did in 1992 and also after the large devaluation of 2008) because interest rates are already at the lowest level compatible with the stability of British banks. That, incidentally, is another reason to worry about Brexit. For if a fall in house prices and loss of jobs causes a recession after Brexit, as is likely, there will be very little that monetary policy can do to stimulate the economy and counteract the consequent loss of demand.

Second, the UK now has a very large current account deficit – much larger, relatively, than in 1992 or 2008. In fact Britain is more dependent than at any time in history on inflows of foreign capital. As the governor of the Bank of England Mark Carney said, Britain “depends  on the kindness of strangers”. The devaluations of 1992 and 2008 encouraged greater capital inflows, especially into residential and commercial property, but also into manufacturing investments. But after Brexit, the capital flows would almost certainly move the other way, especially during the two-year period of uncertainty while Britain negotiates its terms of divorce with a region that has always been – and presumably will remain – its biggest trading and investment partner.

Third, a post-Brexit devaluation is unlikely to produce the improvement in manufacturing exports seen after 1992, because trading conditions would be too uncertain for British businesses to undertake new investments, hire more workers or otherwise add to export capacity.

For all these reasons I believe the devaluation this time would be more like the one in 1967, when Harold Wilson famously declared that “the pound in your pocket  has not been devalued”, but the British people disagreed with him, quickly noticing that the cost of imports and foreign holidays were rising sharply and that their true living standards were going down. Meanwhile financial speculators, back then called the Gnomes of Zurich, were making large profits at Britain’s expense.

Today, there are speculative forces in the markets much bigger and more powerful. And they will be eager to exploit any miscalculations by the British government or British voters. A vote for Brexit would make some people very rich – but most voters considerably poorer.

I want people to know what the consequences of leaving the EU would be before they cast their votes, rather than after. A vote to leave could see the week end with a Black Friday, and serious consequences for ordinary people."

Also in the list of big names who are strongly vocal against Brexit is UK Chancellor of the Exchequer, George Osborne who hinted that the London Stock Exchange might be shut down if Brexit happened, adding him to the list of many people of appointment who have warned of the ill consequences of Brexit, which many have called fear mongering.

The Telegraph has more: 

"The Chancellor responded: “Well look, the Bank of England and the Treasury – Governor Carney and myself – we have of course discussed contingency plans.

But the sensible thing is to keep those secret and make sure you are well prepared for whatever happens but if you set them all out in advance then you rather undermine the power of those plans.”

Pushed again on the contingency plans, Mr Osborne said: “I have a responsibility to the people listening to this programme to do all I can to protect them.  “But I have to tell you that you cannot in the end protect people from the economic shock that leaving the EU would bring about.”

Mr Osborne pointed to warnings from the London Stock Exchange there would be 100,000 job losses in the City after a Brexit.

Mr Osborne was challenged about whether redundancies warned by the bank JP Morgan could come as early as Friday – the day after the referendum. Mr Osborne replied: “I think that will start to happen very quickly, sadly.”

He added that if the UK voted to remain there would be a “quick snap back” for the British economy, he said that “decisions will be taken and investment will come in”. Asked if these redundancy notices would be issued on Friday morning if Britons vote to leave, Mr Osborne said: “That will start to happen very quickly sadly.”

  "If this chart seems messy, it's because it is. The disastrous May payrolls report started it all by sparking a weak USD trend, a rally in gold (and precious metals), weakness in oil after an initial bounce higher, and lower TSY yields. Remember that May's NFP missed expectations by the largest on record.    Then came last Wednesday's June FOMC event which not only saw no rate hike but a surprising dovish shift in Fed language and posture to the dovish side. This initially exacerbated the prevailing trends, but that was short lived in retrospect.    The dead of Jo Cox, which can be termed the "Jo Cox bounce", changed everything because risk sentiment seemed to have flipped from risk off to risk on. And it was risk on on a major scale. The fact that we saw 3 day's worth of losses in cable and stocks erased in 1 and a half days of gains speaks volumes about the underlying nature and structure of the market.    While there will still be a lot of uncertainty left to contend with, one cannot discount this price action just yet..."    Business Of Finance on Facebook, 21 June 2016

"If this chart seems messy, it's because it is. The disastrous May payrolls report started it all by sparking a weak USD trend, a rally in gold (and precious metals), weakness in oil after an initial bounce higher, and lower TSY yields. Remember that May's NFP missed expectations by the largest on record.

Then came last Wednesday's June FOMC event which not only saw no rate hike but a surprising dovish shift in Fed language and posture to the dovish side. This initially exacerbated the prevailing trends, but that was short lived in retrospect.

The dead of Jo Cox, which can be termed the "Jo Cox bounce", changed everything because risk sentiment seemed to have flipped from risk off to risk on. And it was risk on on a major scale. The fact that we saw 3 day's worth of losses in cable and stocks erased in 1 and a half days of gains speaks volumes about the underlying nature and structure of the market.

While there will still be a lot of uncertainty left to contend with, one cannot discount this price action just yet..."

Business Of Finance on Facebook, 21 June 2016

  "Like we posted earlier, the reversal in global risk assets along with GBP was perfectly timed with the dead of Jo Cox late Thursday/early Friday. Whether that was correlation or actual causation will perhaps never be known but we are fairly certain that the sharp reversal higher in GBP and risk (ascend was sharper than the prevailing declines) was driven a lot by short covering, to some extent making this a short squeeze.    Why? Because as we've warned last week, when too many traders and/or speculators get on the same side of the boat, the entire boat becomes extremely prone to flipping over at the slightest of a wave. In this case, the wave just happened to be the death of a UK MP which caused Brexit campaigning to be halted late last week, as a result swinging opinion poll sentiment back in favor for 'stay'.    GBPUSD has tracked 'remain' odds almost pip for pip since Friday and is up massively from its lows, gapping viciously higher on Monday. UK banks remain trapped in a major range/corrective structure which is bearish to us, but that didn't stop English banks from posting their largest daily rise since February. European stocks were one of the largest beneficiaries of this reversal in risk sentiment (logically as they were also the hardest hit on last week's risk off flows)."     Business Of Finance on Facebook, 21 June 2016

"Like we posted earlier, the reversal in global risk assets along with GBP was perfectly timed with the dead of Jo Cox late Thursday/early Friday. Whether that was correlation or actual causation will perhaps never be known but we are fairly certain that the sharp reversal higher in GBP and risk (ascend was sharper than the prevailing declines) was driven a lot by short covering, to some extent making this a short squeeze.

Why? Because as we've warned last week, when too many traders and/or speculators get on the same side of the boat, the entire boat becomes extremely prone to flipping over at the slightest of a wave. In this case, the wave just happened to be the death of a UK MP which caused Brexit campaigning to be halted late last week, as a result swinging opinion poll sentiment back in favor for 'stay'.

GBPUSD has tracked 'remain' odds almost pip for pip since Friday and is up massively from its lows, gapping viciously higher on Monday. UK banks remain trapped in a major range/corrective structure which is bearish to us, but that didn't stop English banks from posting their largest daily rise since February. European stocks were one of the largest beneficiaries of this reversal in risk sentiment (logically as they were also the hardest hit on last week's risk off flows)."

Business Of Finance on Facebook, 21 June 2016

20 June (Monday, T-3 Days) 

  "Pound sterling was trading at 1.405 on Thursday morning when a tragic event sent it soaring 600 pips higher, rising above 1.4660 in the following days. Whether the murder of Jo Cox was the catalyst (that has turned around the outcome of the Brexit referendum) is unclear. It is however apparent that the moment when the news of her shooting and subsequent death hit, coincides perfectly with lows in GBP.    Since thence GBP has soared without looking back, as the momentum in the 'leave' camp has gone, replaced by a poll showing 'stay' leading by 3%. As a result, global equities and risk assets have rallied, with the pound strengthening the most since 2008, soaring by 300 pips since Friday's close. Meanwhile, safe haven assets such as the yen, U.S. treasuries, and gold have slumped. The markets are clearly in risk on mode."    Business Of Finance on Facebook, 20 June 2016

"Pound sterling was trading at 1.405 on Thursday morning when a tragic event sent it soaring 600 pips higher, rising above 1.4660 in the following days. Whether the murder of Jo Cox was the catalyst (that has turned around the outcome of the Brexit referendum) is unclear. It is however apparent that the moment when the news of her shooting and subsequent death hit, coincides perfectly with lows in GBP.

Since thence GBP has soared without looking back, as the momentum in the 'leave' camp has gone, replaced by a poll showing 'stay' leading by 3%. As a result, global equities and risk assets have rallied, with the pound strengthening the most since 2008, soaring by 300 pips since Friday's close. Meanwhile, safe haven assets such as the yen, U.S. treasuries, and gold have slumped. The markets are clearly in risk on mode."

Business Of Finance on Facebook, 20 June 2016

Mark Cudmore, a former FX trader, comments on Friday's and today's epic ramp in global risk assets courtesy of a 670 pips explosion in GBPUSD over the last 48 hours of trading:

"Today’s Brexit sentiment-related rally seen across global financial assets will soon dissipate. Far from being a turning point, the next few days will be dominated by fear and risk aversion.

Respite is “a short period of rest or relief from something difficult or unpleasant” according to the Oxford English Dictionary. That almost perfectly wraps up the view across global markets going into the European session.

The latest poll put the Remain vote ahead after last week showing Leave with the higher count. Bookies’ odds of Brexit have also lengthened sharply. Whatever your view on the reliability of pre-referendum surveys, the important point is that the outcome remains uncertain even if it seems unlikely that Britain will leave the EU.

The referendum is the single biggest risk-event in 2016. No major money manager can afford the consequences of being wrong if they significantly increase their risk exposure this week.

The bravest and most nimble can perhaps punt on sentiment moves. But that is only day-traders and the most opportunistic of hedge funds, and they are a minority of money flows.

For the next few days, the stronger players will either be sitting on their hands or increasing their Brexit hedges.

Given the lack of liquidity in the market and reduced risk appetite, any major hedging flows will impact markets significantly. This will only add to nervousness and increase hedging pressures further yet again.

Markets will remain sensitive to all headlines and developments either for or against departure. But the relief rally will soon fade and, globally, most risky assets will trade weaker by Thursday."

  "We reported earlier that GBPUSD has rallied some 400 pips since Friday's lows as at Monday's open. Screw that. Cable is now up a staggering 600 pips since Jo Cox was killed. While we don't wish to beat a dead horse deader, we have to highlight just how dangerous it can be to trade GBP crosses during this event risk. Daily swings of 300 pips are to be expected, and if one were leveraged (which will almost certainly be the case), then good riddance.    We've also attached a table containing the estimates from Citi on where it believes the major currency pairs will trade across 6 scenarios — 3 each for Brexit and Bremain. At this rate of ascend, cable would be reaching Citi's "extreme print" estimate for a Bremain case. Astonishing!"    Business Of Finance on Facebook, 20 June 2016

"We reported earlier that GBPUSD has rallied some 400 pips since Friday's lows as at Monday's open. Screw that. Cable is now up a staggering 600 pips since Jo Cox was killed. While we don't wish to beat a dead horse deader, we have to highlight just how dangerous it can be to trade GBP crosses during this event risk. Daily swings of 300 pips are to be expected, and if one were leveraged (which will almost certainly be the case), then good riddance.

We've also attached a table containing the estimates from Citi on where it believes the major currency pairs will trade across 6 scenarios — 3 each for Brexit and Bremain. At this rate of ascend, cable would be reaching Citi's "extreme print" estimate for a Bremain case. Astonishing!"

Business Of Finance on Facebook, 20 June 2016

  "Cable (GBPUSD) has now rallied from last Thursday's lows of 1.40 to the current 1.44 a few short hours after the FX markets opened for trading Monday. The 400+ pip rally in GBPUSD (along with other GBP crosses) was clearly sparked by the killing of UK MP Jo Cox, a pro-Brexit advocate.    As campaigning was temporarily suspended (still is to date), selling in GBP seemed to exhaust itself as shorts scrambled to cover as upside momentum exploded. We might have seen a short squeeze, as we noted last week that both sentiment and market positioning in GBP futures were at extremely levels, while prices were approaching key technical support. It's fair to say that quite some number of traders shorted GBP at or around 1.40, expecting a breakdown on what in retrospect seems to be climactic selling."    Business Of Finance on Facebook, 20 June 2016

"Cable (GBPUSD) has now rallied from last Thursday's lows of 1.40 to the current 1.44 a few short hours after the FX markets opened for trading Monday. The 400+ pip rally in GBPUSD (along with other GBP crosses) was clearly sparked by the killing of UK MP Jo Cox, a pro-Brexit advocate.

As campaigning was temporarily suspended (still is to date), selling in GBP seemed to exhaust itself as shorts scrambled to cover as upside momentum exploded. We might have seen a short squeeze, as we noted last week that both sentiment and market positioning in GBP futures were at extremely levels, while prices were approaching key technical support. It's fair to say that quite some number of traders shorted GBP at or around 1.40, expecting a breakdown on what in retrospect seems to be climactic selling."

Business Of Finance on Facebook, 20 June 2016

  "This week, the UK will vote on whenever it wishes to remain part of the European Union, or leave the EU. Financial markets are going to be extremely sensitive to opinion poll data and the comments and uttering of politicians, figure heads, and luminaries alike. Expect volatility, perhaps trendless trading until we come hours before the ballots open on Thursday. To say that this is a historic event is an understatement. The conflicting vested interests both the 'leave' and 'stay' camp remain tensioned. We will be updating followers as events progress.    But back to the topic of at hand, latest opinion polls as recent as from 19 June (Sunday) show that the balance is pretty much centered. The event that marked the short term inflection point in voter sentiment is of course the killing of UK MP Jo Cox late last week. The murder led to the suspension (temporary?) of campaigning by both sides, but it seems Brexit has taken a much larger blow than Bremain, as it's safe to say that it has taken much more volition to convince voters to vote for Brexit than the status quo of Bremain.    As such, the ball is back at the center of the court as the UK mourns the death of a well revered politician, and more truth about the killer's motives continues to be unraveled. This is obviously going to be a close race by any measure of imagination, and what happens in the coming days should determine which side eventually wins on the day of referendum.    ***    Opinion polls mixed with marginal leads by both camps and a tie reported by the FT:     YOUGOV/ITV: 44% LEAVE, 42% REMAIN (19 June)    SURVATION: 42% LEAVE, 45% REMAIN (19 June)    OPINIUM: 44% LEAVE, 44% REMAIN (18 June)     ***    However, bookkeepers report that Bremain still leads by a large margin:     WILLIAM HILL: 77% REMAIN, 29% LEAVE    LADBROKES: 75% REMAIN, 31% LEAVE     ***    And finally some comments from outspoken pro-Brexit MP Nigel Farage:    "When you are taking on the establishment, you need to have momentum. I don't know what is going to happen over the course of the next 3 or 4 days, but I would say this. That the action of one person with serious mental issues, frankly what we saw was an act of terrorism. It's been a dreadful week: Orlando, killings in Paris, now one of our own MPs. It's difficult to tell but I just think this: those that have made their mind up to leave, cause they want to get control of their country back, they will go out and vote on Thursday.""    Business Of Finance On Facebook, 20 June 2016

"This week, the UK will vote on whenever it wishes to remain part of the European Union, or leave the EU. Financial markets are going to be extremely sensitive to opinion poll data and the comments and uttering of politicians, figure heads, and luminaries alike. Expect volatility, perhaps trendless trading until we come hours before the ballots open on Thursday. To say that this is a historic event is an understatement. The conflicting vested interests both the 'leave' and 'stay' camp remain tensioned. We will be updating followers as events progress.

But back to the topic of at hand, latest opinion polls as recent as from 19 June (Sunday) show that the balance is pretty much centered. The event that marked the short term inflection point in voter sentiment is of course the killing of UK MP Jo Cox late last week. The murder led to the suspension (temporary?) of campaigning by both sides, but it seems Brexit has taken a much larger blow than Bremain, as it's safe to say that it has taken much more volition to convince voters to vote for Brexit than the status quo of Bremain.

As such, the ball is back at the center of the court as the UK mourns the death of a well revered politician, and more truth about the killer's motives continues to be unraveled. This is obviously going to be a close race by any measure of imagination, and what happens in the coming days should determine which side eventually wins on the day of referendum.

***

Opinion polls mixed with marginal leads by both camps and a tie reported by the FT:

  • YOUGOV/ITV: 44% LEAVE, 42% REMAIN (19 June)
  • SURVATION: 42% LEAVE, 45% REMAIN (19 June)
  • OPINIUM: 44% LEAVE, 44% REMAIN (18 June)

***

However, bookkeepers report that Bremain still leads by a large margin:

  • WILLIAM HILL: 77% REMAIN, 29% LEAVE
  • LADBROKES: 75% REMAIN, 31% LEAVE

***

And finally some comments from outspoken pro-Brexit MP Nigel Farage:

"When you are taking on the establishment, you need to have momentum. I don't know what is going to happen over the course of the next 3 or 4 days, but I would say this. That the action of one person with serious mental issues, frankly what we saw was an act of terrorism. It's been a dreadful week: Orlando, killings in Paris, now one of our own MPs. It's difficult to tell but I just think this: those that have made their mind up to leave, cause they want to get control of their country back, they will go out and vote on Thursday.""

Business Of Finance On Facebook, 20 June 2016

19 June (Sunday, T-4 Days) 

  "Since the topic of Brexit is hotter than red hot steel, we'd figure we let followers in on something that's not widely known. The fact is this: Opinion polls are exactly what they are — polls about opinions.    This chart shows very clearly how actual vote results have historically, over the last 2 most major referendums (Quebec in 1995, and Scotland in 2014), turned out significantly off from their last respective opinion poll averages. Notice how the "X"s marked out in black circles came in much more in favor of the "Leave" vote than where polls were left at? In fact, during the Quebec referendum in 1995, the opinion polls for "Leave" had a 5% lead over "Stay", but the actual vote result came in favor of "Stay" with a 1.2% advantage (a 6.2% swing from one to the other side).    We note that the poll results for the current UK referendum are somewhat similar to Quebec's, but with more volatility now and larger leads for "Leave".    This just goes to show how much actual vote results can and most likely will differ from poll results. The very fact that financial markets have been taking their cues from the deluge of opinion poll results, and not to mention every break of a new headline about Brexit, makes a capitulation very like in the day of voting. Said capitulation would obviously be the opposite of the risk aversion flows we have been seeing for most of June; that is to sell risk, and buy safety (see bottom of chart).    Will history repeat itself? Find out this Thursday...    ***    Meanwhile, more details from Deutsche Bank on this phenomenon:    While we are not pollsters so find it impossible to understand the biases that might be there it's interesting to graph the opinion poll leads for the Scottish referendum in September 2014, the Quebec referendum in 1995, and that of the current UK vote.    The status quo of 'remain' saw its lead progressively reduce in all three as referendum day approached. The big difference in Scotland was that apart from two shock polls one and two weeks out, 'remain' stayed comfortably in the lead in every other poll. In Quebec the lead and momentum for 'leave' was similar to that seen recently in the UK with the exception of one even bigger lead for UK 'leave' this past weekend.    The average lead of the last 3-4 days of polls before the vote was around 4% for 'remain' in Scotland. However the actual result saw a 10.6% win for 'remain'. In Quebec the equivalent numbers were a 5% lead for 'leave' but a 1.2% win for 'remain'. So polls effectively showed a 6% final swing back towards 'remain' or there was polling error. We'll never know which and we won't know until next week whether history repeats.    ***    And BofAML chimes in on how one might trade the UK referendum (or should we colloquially say gamble):    June has already been a Brexit trade as precious metals, bonds, and credit rallied while equities fell. Watch GBP, bund yields, and Euro bank stocks after the vote. If GBPUSD can hold 1.39 the risk-off Brexit trade is likely to reverse. Note in the 1976 IMF crisis & the 1992 ERM crisis a low in sterling was the catalyst for a marked change in market direction of UK assets.     On a Brexit vote: long gold, short peripheral debt versus bunds, long EUR vol vs GBP, short volatility/long risk once sterling troughs. With GBP options priced above 2008 extremes (31% then vs. 39% now) and FTSE options at the 98th percentile of 10-year ranks, short volatility after a market decline by selling GBP and UKX puts. Hedge potential aftershocks in Spanish and Italian elections with V2X call spreads and EUR vol. Additionally, consider buying UK stocks that derive a large percentage of their sales from the US and/or UK midcaps, which are trading at 4.5-year relative lows vs. European peers.    On “Bremain”: long DM equities for the bearish positioning unwind and short volatility immediately; short Spanish & Italian bonds vs. gilts; take a closer grip on the barbell. S&P 500 options are now visibly pricing in Brexit risk, so expect the term structure to normalize and short volatility by selling SPX puts or buying VIX puts along with the bullish UK trades above. Political event risk will remain for peripheral Europe, so short Spain and Italy, replacing bunds with gilts as foreign investors pile back into UK debt."     Business Of Finance on Facebook, 19 June 2016

"Since the topic of Brexit is hotter than red hot steel, we'd figure we let followers in on something that's not widely known. The fact is this: Opinion polls are exactly what they are — polls about opinions.

This chart shows very clearly how actual vote results have historically, over the last 2 most major referendums (Quebec in 1995, and Scotland in 2014), turned out significantly off from their last respective opinion poll averages. Notice how the "X"s marked out in black circles came in much more in favor of the "Leave" vote than where polls were left at? In fact, during the Quebec referendum in 1995, the opinion polls for "Leave" had a 5% lead over "Stay", but the actual vote result came in favor of "Stay" with a 1.2% advantage (a 6.2% swing from one to the other side).

We note that the poll results for the current UK referendum are somewhat similar to Quebec's, but with more volatility now and larger leads for "Leave".

This just goes to show how much actual vote results can and most likely will differ from poll results. The very fact that financial markets have been taking their cues from the deluge of opinion poll results, and not to mention every break of a new headline about Brexit, makes a capitulation very like in the day of voting. Said capitulation would obviously be the opposite of the risk aversion flows we have been seeing for most of June; that is to sell risk, and buy safety (see bottom of chart).

Will history repeat itself? Find out this Thursday...

***

Meanwhile, more details from Deutsche Bank on this phenomenon:

While we are not pollsters so find it impossible to understand the biases that might be there it's interesting to graph the opinion poll leads for the Scottish referendum in September 2014, the Quebec referendum in 1995, and that of the current UK vote.

The status quo of 'remain' saw its lead progressively reduce in all three as referendum day approached. The big difference in Scotland was that apart from two shock polls one and two weeks out, 'remain' stayed comfortably in the lead in every other poll. In Quebec the lead and momentum for 'leave' was similar to that seen recently in the UK with the exception of one even bigger lead for UK 'leave' this past weekend.

The average lead of the last 3-4 days of polls before the vote was around 4% for 'remain' in Scotland. However the actual result saw a 10.6% win for 'remain'. In Quebec the equivalent numbers were a 5% lead for 'leave' but a 1.2% win for 'remain'. So polls effectively showed a 6% final swing back towards 'remain' or there was polling error. We'll never know which and we won't know until next week whether history repeats.

***

And BofAML chimes in on how one might trade the UK referendum (or should we colloquially say gamble):

June has already been a Brexit trade as precious metals, bonds, and credit rallied while equities fell. Watch GBP, bund yields, and Euro bank stocks after the vote. If GBPUSD can hold 1.39 the risk-off Brexit trade is likely to reverse. Note in the 1976 IMF crisis & the 1992 ERM crisis a low in sterling was the catalyst for a marked change in market direction of UK assets.

  • On a Brexit vote: long gold, short peripheral debt versus bunds, long EUR vol vs GBP, short volatility/long risk once sterling troughs. With GBP options priced above 2008 extremes (31% then vs. 39% now) and FTSE options at the 98th percentile of 10-year ranks, short volatility after a market decline by selling GBP and UKX puts. Hedge potential aftershocks in Spanish and Italian elections with V2X call spreads and EUR vol. Additionally, consider buying UK stocks that derive a large percentage of their sales from the US and/or UK midcaps, which are trading at 4.5-year relative lows vs. European peers.
  • On “Bremain”: long DM equities for the bearish positioning unwind and short volatility immediately; short Spanish & Italian bonds vs. gilts; take a closer grip on the barbell. S&P 500 options are now visibly pricing in Brexit risk, so expect the term structure to normalize and short volatility by selling SPX puts or buying VIX puts along with the bullish UK trades above. Political event risk will remain for peripheral Europe, so short Spain and Italy, replacing bunds with gilts as foreign investors pile back into UK debt."

Business Of Finance on Facebook, 19 June 2016

17 June (Friday, T-6 Days) 

  "After the pro-Brexit UK lawmaker was killed by a mentally ill person, campaigning was halted (now for the second day). This sent Brexit risk lower as seen in the top pane, and GBP higher, dragging risk assets up. We talked about this earlier today but have to ask the question of whether this is a blip in a trend, or a reversal. Only one way to find out... That is to wait and well, continue to gamble at the Brexit table."    Business Of Finance on Facebook, 17 June 2016

"After the pro-Brexit UK lawmaker was killed by a mentally ill person, campaigning was halted (now for the second day). This sent Brexit risk lower as seen in the top pane, and GBP higher, dragging risk assets up. We talked about this earlier today but have to ask the question of whether this is a blip in a trend, or a reversal. Only one way to find out... That is to wait and well, continue to gamble at the Brexit table."

Business Of Finance on Facebook, 17 June 2016

  "What happens when a mindless market crashes on fears of something stupid happening, something such as Brexit (which no one really knows the outcome of until a week later), overshooting bearishness, climatic fear, and senseless panic selling? Well the opposite happens on the slightest of events.    These charts tell the full story and we needn't repeat ourselves. The event that reversed most markets from their post FOMC trends was the killing of British pro-Brexit law maker. The person was shot dead, leading to what was a micro capitulation in the short GBP, and long USD (yes, long USD even after a pretty dovish June FOMC statement and press conference with Yellen...). So we got a sharp reversal in just about every asset class besides oil.    Stocks are not unchanged from pre-FOMC, gold is lower, yields are only slightly lower (from very much lower)... Like we said, trading this market is akin to gambling without knowing one's odds. So good luck try to wit out a senseless market. We wish to have nothing to do with this..."    Business Of Finance on Facebook, 17 June 2016

"What happens when a mindless market crashes on fears of something stupid happening, something such as Brexit (which no one really knows the outcome of until a week later), overshooting bearishness, climatic fear, and senseless panic selling? Well the opposite happens on the slightest of events.

These charts tell the full story and we needn't repeat ourselves. The event that reversed most markets from their post FOMC trends was the killing of British pro-Brexit law maker. The person was shot dead, leading to what was a micro capitulation in the short GBP, and long USD (yes, long USD even after a pretty dovish June FOMC statement and press conference with Yellen...). So we got a sharp reversal in just about every asset class besides oil.

Stocks are not unchanged from pre-FOMC, gold is lower, yields are only slightly lower (from very much lower)... Like we said, trading this market is akin to gambling without knowing one's odds. So good luck try to wit out a senseless market. We wish to have nothing to do with this..."

Business Of Finance on Facebook, 17 June 2016

16 June (Thursday, T-7 Days) 

  "What happens on the first 100 days should the UK vote to leave the European Union? Everywhere you look, there are potential consequences if Brexit happens. Is this why the fear is so real in Europe?    Bloomberg has the full story of analysis:    Before dawn on June 24, if an exit vote becomes clear, the EU’s top brass from Berlin to Brussels will be forced into damage control. In echoes of the Greek debt crisis, euro-area finance ministers may hold an emergency meeting as soon as that evening. Wild swings in the pound, more aggressive interventions by the Swiss National Bank and a ratcheting up of global instability rank as likely market reactions.    Currency markets haven’t priced in the U.K.’s exit from the EU, so if it happens, “a crash is pretty likely,” Lothar Mentel, chief executive officer of Tatton Investment Management in London, said on Bloomberg Television. “We would have to brace ourselves for quite a rough awakening on that Friday.”    The political fallout may be even more fraught. Europe’s traditional counterweights, France and Germany, whose enmity the EU was set up to banish, will seek to gain some of the initiative. They are planning a response as early as June 24 that could include a commitment to deeper euro-area integration as well as a declaration that the EU dream remains alive, according to three people familiar with the plans.    “The European Union will need to have a credible strategy,” said Guntram Wolff, of the Brussels-based policy group Bruegel. “To avoid a gradual disintegration of the EU, political leaders will need to strengthen the attractiveness of the EU and especially the Franco-German alliance.”    As the weekend begins and the reality dawns in the U.K. that it has voted to leave the world’s largest trading bloc, the rest of Europe will have their own questions to answer. Amid fears that a “Leave” vote could further fuel populist and anti-establishment sentiment throughout Europe, the EU’s leaders could choose to take the unprecedented step of calling an emergency summit without British representation as early as Saturday, June 25.    The reason would be two-fold: send a message to Spanish voters who go to the polls June 26 that the EU remains strong; and to work out what to offer -- or, more likely, what not to offer -- the U.K. in areas such as free movement of people and access to the EU’s single market.    There will be divisions to overcome even without the British. In France, where opinion polls say the euroskeptic National Front may make it through to the runoff in next year’s presidential elections, President Francois Hollande will have cause to show the electorate that leaving the bloc carries negative consequences. Other leaders, such as those of the Netherlands and Denmark, where anti-EU feeling is also growing, may consider it more politically beneficial to offer support to Britain, their traditional ally.    Nations outside the euro area, especially those where anti-EU sentiment has been on the rise, such as Hungary, Poland and Sweden, could form a group of countries resisting any French and German attempts to move the EU in a more integrationist direction. With Britain’s exit, non-euro countries would lose their crucial partner -- they would represent only 14 percent of the EU’s gross domestic product. David Cameron is scheduled to meet the other 27 EU leaders at a summit in Brussels the following week. It’s at this gathering that the prime minister is likely to trigger the EU’s Article 50 -- the never-before-used law that catapults nations out of the club.    That would set a deadline of two years -- until the end of June 2018, during which time the U.K. would have to negotiate its exit. Will Cameron want the U.K. to become like Norway or Iceland and maintain a close working relationship with the bloc as part of the European Economic Area? Or could there be another set-up that means the U.K. would have to trade with the EU under the World Trade Organization framework?    EU chiefs fear the referendum will spark similar demands across the continent. With elections due in the Netherlands, France and Germany in 2017, there’s reason to discourage others from following the U.K.’s course, and this could weaken Britain’s hand in negotiations. It could also divert the EU’s attention away from other issues, including Greek finances, the refugee crisis and tackling instability in Ukraine, according to Michael Leigh, senior fellow at the German Marshall Fund.    By this time, the political mist in the U.K. may be clearing. The EU could find itself dealing with another prime minister -- someone like former London Mayor Boris Johnson, who supported Brexit and whom bookmakers have installed as the favorite to lead the Conservative Party. Whoever it is, the new British leader would probably have to extricate the U.K. from the EU while facing the prospect of a further referendum, on Scottish independence.    The U.K. would start talks to renegotiate EU agreements in areas as diverse as fishing quotas, financial-services legislation and health and safety standards established over more than 50 years, simultaneously having to start negotiating its own trade deals with the rest of the world. Talks would also have to begin on the relocation of EU bodies headquartered in the U.K., such as the European Banking Authority. Each step of the way must be agreed upon by the EU’s other members and the European Parliament, a process lasting at least seven years and with no guarantee of success, EU President Tusk told Germany’s Bild newspaper.    “No one can predict the long-term consequences,” Tusk said in the interview. “I fear that Brexit could be the beginning of the end not only of the EU, but of the entire western political civilization.”"    Business Of Finance on Facebook, 16 June 2016

"What happens on the first 100 days should the UK vote to leave the European Union? Everywhere you look, there are potential consequences if Brexit happens. Is this why the fear is so real in Europe?

Bloomberg has the full story of analysis:

Before dawn on June 24, if an exit vote becomes clear, the EU’s top brass from Berlin to Brussels will be forced into damage control. In echoes of the Greek debt crisis, euro-area finance ministers may hold an emergency meeting as soon as that evening. Wild swings in the pound, more aggressive interventions by the Swiss National Bank and a ratcheting up of global instability rank as likely market reactions.

Currency markets haven’t priced in the U.K.’s exit from the EU, so if it happens, “a crash is pretty likely,” Lothar Mentel, chief executive officer of Tatton Investment Management in London, said on Bloomberg Television. “We would have to brace ourselves for quite a rough awakening on that Friday.”

The political fallout may be even more fraught. Europe’s traditional counterweights, France and Germany, whose enmity the EU was set up to banish, will seek to gain some of the initiative. They are planning a response as early as June 24 that could include a commitment to deeper euro-area integration as well as a declaration that the EU dream remains alive, according to three people familiar with the plans.

“The European Union will need to have a credible strategy,” said Guntram Wolff, of the Brussels-based policy group Bruegel. “To avoid a gradual disintegration of the EU, political leaders will need to strengthen the attractiveness of the EU and especially the Franco-German alliance.”

As the weekend begins and the reality dawns in the U.K. that it has voted to leave the world’s largest trading bloc, the rest of Europe will have their own questions to answer. Amid fears that a “Leave” vote could further fuel populist and anti-establishment sentiment throughout Europe, the EU’s leaders could choose to take the unprecedented step of calling an emergency summit without British representation as early as Saturday, June 25.

The reason would be two-fold: send a message to Spanish voters who go to the polls June 26 that the EU remains strong; and to work out what to offer -- or, more likely, what not to offer -- the U.K. in areas such as free movement of people and access to the EU’s single market.

There will be divisions to overcome even without the British. In France, where opinion polls say the euroskeptic National Front may make it through to the runoff in next year’s presidential elections, President Francois Hollande will have cause to show the electorate that leaving the bloc carries negative consequences. Other leaders, such as those of the Netherlands and Denmark, where anti-EU feeling is also growing, may consider it more politically beneficial to offer support to Britain, their traditional ally.

Nations outside the euro area, especially those where anti-EU sentiment has been on the rise, such as Hungary, Poland and Sweden, could form a group of countries resisting any French and German attempts to move the EU in a more integrationist direction. With Britain’s exit, non-euro countries would lose their crucial partner -- they would represent only 14 percent of the EU’s gross domestic product. David Cameron is scheduled to meet the other 27 EU leaders at a summit in Brussels the following week. It’s at this gathering that the prime minister is likely to trigger the EU’s Article 50 -- the never-before-used law that catapults nations out of the club.

That would set a deadline of two years -- until the end of June 2018, during which time the U.K. would have to negotiate its exit. Will Cameron want the U.K. to become like Norway or Iceland and maintain a close working relationship with the bloc as part of the European Economic Area? Or could there be another set-up that means the U.K. would have to trade with the EU under the World Trade Organization framework?

EU chiefs fear the referendum will spark similar demands across the continent. With elections due in the Netherlands, France and Germany in 2017, there’s reason to discourage others from following the U.K.’s course, and this could weaken Britain’s hand in negotiations. It could also divert the EU’s attention away from other issues, including Greek finances, the refugee crisis and tackling instability in Ukraine, according to Michael Leigh, senior fellow at the German Marshall Fund.

By this time, the political mist in the U.K. may be clearing. The EU could find itself dealing with another prime minister -- someone like former London Mayor Boris Johnson, who supported Brexit and whom bookmakers have installed as the favorite to lead the Conservative Party. Whoever it is, the new British leader would probably have to extricate the U.K. from the EU while facing the prospect of a further referendum, on Scottish independence.

The U.K. would start talks to renegotiate EU agreements in areas as diverse as fishing quotas, financial-services legislation and health and safety standards established over more than 50 years, simultaneously having to start negotiating its own trade deals with the rest of the world. Talks would also have to begin on the relocation of EU bodies headquartered in the U.K., such as the European Banking Authority. Each step of the way must be agreed upon by the EU’s other members and the European Parliament, a process lasting at least seven years and with no guarantee of success, EU President Tusk told Germany’s Bild newspaper.

“No one can predict the long-term consequences,” Tusk said in the interview. “I fear that Brexit could be the beginning of the end not only of the EU, but of the entire western political civilization.”"

Business Of Finance on Facebook, 16 June 2016

15 June (Wednesday, T-8 Days) 

  "We've compiled pretty much the most comprehensive illustration on the UK Brexit opinion polls across the English country. There are many pollsters involved in garnering viewpoints on Brexit so it bears prudence to view data widely.    One thing is for sure across all data sources — Brexit is gaining ground and is taking a clear lead ver the once predominant "stay" camp.    Another thing is apparently clear — Since Obama's visit to the UK a few months back (the American President encouraged voters not to vote for Brexit), sentiment has shifted in favor for the "leave" camp. Was Obama the vixen? Well, the data doesn't lie."    Business Of Finance on Facebook, 15 June 2016

"We've compiled pretty much the most comprehensive illustration on the UK Brexit opinion polls across the English country. There are many pollsters involved in garnering viewpoints on Brexit so it bears prudence to view data widely.

One thing is for sure across all data sources — Brexit is gaining ground and is taking a clear lead ver the once predominant "stay" camp.

Another thing is apparently clear — Since Obama's visit to the UK a few months back (the American President encouraged voters not to vote for Brexit), sentiment has shifted in favor for the "leave" camp. Was Obama the vixen? Well, the data doesn't lie."

Business Of Finance on Facebook, 15 June 2016

14 June (Tuesday, T-9 Days) 

  "The Brexit fever has gotten so ridiculous that almost every market is swinging around it. Forget this Wednesday's FOMC statement and rate decision. The markets have decided that they wish to take cues on the leave-stay game that is the UK referendum upcoming next Thursday.    Traders have gotten so fearful (overly we would say) that 10-year German bund yields have slumped under zero to trade with negative yields for the first time in history. Yes the German curve has officially gone subzero for a decade, joining Japan.    Oh we can totally see this ending well (sarcasm meant)..."    Business Of Finance on Facebook, 14 June 2016

"The Brexit fever has gotten so ridiculous that almost every market is swinging around it. Forget this Wednesday's FOMC statement and rate decision. The markets have decided that they wish to take cues on the leave-stay game that is the UK referendum upcoming next Thursday.

Traders have gotten so fearful (overly we would say) that 10-year German bund yields have slumped under zero to trade with negative yields for the first time in history. Yes the German curve has officially gone subzero for a decade, joining Japan.

Oh we can totally see this ending well (sarcasm meant)..."

Business Of Finance on Facebook, 14 June 2016

13 June (Monday, T-10 Days) 

  "By now, everyone and their pet rabbit should be familiar with "Brexit", a term coined to signify the UK leaving the EU, thereby severing most trade, economic, and other significant ties with the continental bloc. And as more and more chatter, banter, and trading volumes get directed to this topic or Brexit, expect crazier moves in the pound sterling.    As the charts have shown, GBP has been tossed round by the markets like a rag doll, mostly trading in a very wide range against other crosses before finally breaking down last weak. Said breakdown was the result of new poll results showing the widening lead the "leave" camp (Brexit) has over the "stay" camp (Bremain). The latest figures are something like a 52% vote for Brexit and a 37% vote for Bremain, implying a 15-17% lead for Brexit. This is also the widest lead yet and is obviously stoking great fears that the UK might indeed vote to leave the EU when Britons take to the ballots next week.    The consequences of all this drama has been massive weakness in the pound; down some 400+ pips against the USD since last week, and down some 1000 pips against the yen over he same period. Vol premium has also risen to record highs as we've shown before, and short exposure (futures and options) has reached 3-year highs.    Again, we reiterate our unwillingness to gamble in this cesspool of punditry..."    Business Of Finance on Facebook, 13 June 2016

"By now, everyone and their pet rabbit should be familiar with "Brexit", a term coined to signify the UK leaving the EU, thereby severing most trade, economic, and other significant ties with the continental bloc. And as more and more chatter, banter, and trading volumes get directed to this topic or Brexit, expect crazier moves in the pound sterling.

As the charts have shown, GBP has been tossed round by the markets like a rag doll, mostly trading in a very wide range against other crosses before finally breaking down last weak. Said breakdown was the result of new poll results showing the widening lead the "leave" camp (Brexit) has over the "stay" camp (Bremain). The latest figures are something like a 52% vote for Brexit and a 37% vote for Bremain, implying a 15-17% lead for Brexit. This is also the widest lead yet and is obviously stoking great fears that the UK might indeed vote to leave the EU when Britons take to the ballots next week.

The consequences of all this drama has been massive weakness in the pound; down some 400+ pips against the USD since last week, and down some 1000 pips against the yen over he same period. Vol premium has also risen to record highs as we've shown before, and short exposure (futures and options) has reached 3-year highs.

Again, we reiterate our unwillingness to gamble in this cesspool of punditry..."

Business Of Finance on Facebook, 13 June 2016

Older (T-11 & beyond)

  "With just 13 days left before the UK votes in its future with the EU, GBP implied volatility (risk premium) has exploded to an all-time high, eclipsing that seen during the 2008/9 Global Financial Crisis and Great Recession. It seems that with every subsequent opinion poll being released closer and closer to D-date, the "Leave" camp (Brexit) is gaining a widening lead over the "Stay" camp (Bremain).    FX traders at least have begun to wake up to the short term uncertainties to what Brexit might entail. A short-term measure of expected price swings for the pound climbed for a third week as traders sought protection via GBP futures options on both sides. While we prefer not to speculate (gamble) on this game of Brexit or Bremain, we have a queer feeling that fear has been overpriced, and misplaced.    Why so? Well, history says so. Harken back to the good old nostalgic days of "Grexit", a term coined for the possibility of Greece exiting the Euro Zone, where European equity markets had all the time in the world to discount for a heightened risk of a "Grexit" event but waited till the last minute before risk premium became heavily bid; a few days before a crucial IMF loan repayment deadline in fact.     ***    Credit Suisse covered this story and explain why the current Brexit situation might be a tad reminiscent to that saga:    If this is anything like the “Grexit” catalyst last year, equity markets may wait until the last minute to price in the appropriate risk premium.    As you can see from the EFA vol chart, even though “Grexit” was a well-known and well-anticipated catalyst last year, EFA 1M implied vol was still trading as low as 11.7% the week before Greece’s June 30th IMF repayment deadline.    EFA 1M implied vol ended up surging 8 vol pts in the final week before the deadline and another 3 vol pts after a surprise referendum was called over the July 4th weekend last year.    And it wasn’t just EFA. VIX also didn’t start reacting to “Grexit” risk until the final week when it jumped from 12 to 19.    Will the same thing happen this time? If so, I think it makes sense to hedge now when you can (and when it’s cheap!), not when you have to in the final days before the deadline when implied vols will have already climbed higher.    ***     It seems to us the hedges have already been put in place and it's a matter of how much and how far traders are willing to push premiums before they blow off post the referendum..."    Business Of Finance on Facebook, 11 June 2016

"With just 13 days left before the UK votes in its future with the EU, GBP implied volatility (risk premium) has exploded to an all-time high, eclipsing that seen during the 2008/9 Global Financial Crisis and Great Recession. It seems that with every subsequent opinion poll being released closer and closer to D-date, the "Leave" camp (Brexit) is gaining a widening lead over the "Stay" camp (Bremain).

FX traders at least have begun to wake up to the short term uncertainties to what Brexit might entail. A short-term measure of expected price swings for the pound climbed for a third week as traders sought protection via GBP futures options on both sides. While we prefer not to speculate (gamble) on this game of Brexit or Bremain, we have a queer feeling that fear has been overpriced, and misplaced.

Why so? Well, history says so. Harken back to the good old nostalgic days of "Grexit", a term coined for the possibility of Greece exiting the Euro Zone, where European equity markets had all the time in the world to discount for a heightened risk of a "Grexit" event but waited till the last minute before risk premium became heavily bid; a few days before a crucial IMF loan repayment deadline in fact.

 ***

Credit Suisse covered this story and explain why the current Brexit situation might be a tad reminiscent to that saga:

If this is anything like the “Grexit” catalyst last year, equity markets may wait until the last minute to price in the appropriate risk premium.

As you can see from the EFA vol chart, even though “Grexit” was a well-known and well-anticipated catalyst last year, EFA 1M implied vol was still trading as low as 11.7% the week before Greece’s June 30th IMF repayment deadline.

EFA 1M implied vol ended up surging 8 vol pts in the final week before the deadline and another 3 vol pts after a surprise referendum was called over the July 4th weekend last year.

And it wasn’t just EFA. VIX also didn’t start reacting to “Grexit” risk until the final week when it jumped from 12 to 19.

Will the same thing happen this time? If so, I think it makes sense to hedge now when you can (and when it’s cheap!), not when you have to in the final days before the deadline when implied vols will have already climbed higher.

*** 

It seems to us the hedges have already been put in place and it's a matter of how much and how far traders are willing to push premiums before they blow off post the referendum..."

Business Of Finance on Facebook, 11 June 2016

  "10 minutes past midnight Eastern Time, GBP spiked slightly over 170 pips in a matter of seconds. Here we display the GBPUSD currency pair, but if you looked at all GBP crosses, spikes are also evident at the same moment. Whatever it was that triggered this crazy spike in the pound is still unknown, but it seems to be a fat figure from way prices decayed after the brief surge occurring over a minute (most of the upside was in a few seconds, though not viable on the charts). A lot of shorts were taken out for sure."    Business Of Finance on Facebook, 7 June 2016

"10 minutes past midnight Eastern Time, GBP spiked slightly over 170 pips in a matter of seconds. Here we display the GBPUSD currency pair, but if you looked at all GBP crosses, spikes are also evident at the same moment. Whatever it was that triggered this crazy spike in the pound is still unknown, but it seems to be a fat figure from way prices decayed after the brief surge occurring over a minute (most of the upside was in a few seconds, though not viable on the charts). A lot of shorts were taken out for sure."

Business Of Finance on Facebook, 7 June 2016

  "Despite what some may allude to as "fear mongering" by British PM David Cameron against Britons voting for the UK to leave the EU, the "Brexit" camp has taken a lead over the "Bremain" camp, according to the latest online poll results published early Monday. As we have documented earlier on, GBP risk premiums have surged to all time highs, implying that traders have been opening hedges on GBP volatility, expecting premiums to be justified when the actual referendum results are released in 3 weeks time.    We prefer not to gamble in this pool."    Business Of Finance on Facebook, 7 June 2016

"Despite what some may allude to as "fear mongering" by British PM David Cameron against Britons voting for the UK to leave the EU, the "Brexit" camp has taken a lead over the "Bremain" camp, according to the latest online poll results published early Monday. As we have documented earlier on, GBP risk premiums have surged to all time highs, implying that traders have been opening hedges on GBP volatility, expecting premiums to be justified when the actual referendum results are released in 3 weeks time.

We prefer not to gamble in this pool."

Business Of Finance on Facebook, 7 June 2016

  "Right out of the open on Monday, GBP crashed in the news of the Brexit camp get taking the Bremain camp — 45% vs. 41%. The referendum on EU membership is lurking only 3 weeks ahead, and traders are wasting no time buying up every last bit of protection on GBP as they bid up volatility premium on GBP options to a record high! Obviously to say the least, most expect a major rattling of the markets during this historic event!"    Business Of Finance on Facebook, 6 June 2016

"Right out of the open on Monday, GBP crashed in the news of the Brexit camp get taking the Bremain camp — 45% vs. 41%. The referendum on EU membership is lurking only 3 weeks ahead, and traders are wasting no time buying up every last bit of protection on GBP as they bid up volatility premium on GBP options to a record high! Obviously to say the least, most expect a major rattling of the markets during this historic event!"

Business Of Finance on Facebook, 6 June 2016