Brexit volatility is not ready to fade yet - ANZ

Research Team at ANZ, suggests that in the aftermath of Brexit, the market did get ahead of itself and complacency was the pain trade.

Key Quotes

“Buckle up for Monday, volatility is not ready to fade yet. Initial extreme moves during the UK trading session were pared back with a chorus of central bankers offering up liquidity to the market. The GBP fell to the lowest level in more than 30 years and safe haven assets dominated trading volumes. The GBP lost about 8% with the range being 1.3229-1.5018. The JPY was a recipient of safe haven flows, falling through 100 at one stage, while the EUR shed 2.2%.

The AUD and NZD showed remarkable resilience, down only 1.5-1.8%. Equities plunged with Spain, Italy, and Greece down 12-13%; Euro Stoxx down 8.6%; CAC off 8.0%; and FTSE 100 down 3.2%. US stocks finished over 3% lower. The S&P 500 fell about 3% and the Dow Jones erased year to date gains on Friday. The VIX was up as much as 50% but has come off to about a 40% with the index at 24.5. Treasuries rallied hard during the vote with the 2-year falling 26bps, moves were pared back to 13bps by late NY afternoon. Longer dated treasuries were down 15-20bps.

The market has now priced in a 10% chance of a cut at the next Fed meeting in July. The UK 2-year fell 26bps with the 10 year down 29bps. German yields were about 15 bps lower and France came in 7bps. Periphery CDS shot up with Spain +29bps and Italy +35bps. On thin volumes US IG widened 10bps; US high yields +38bps; and EM +25bps. Commodities were mixed with safe haven gold up 5% to $1320/oz while oil fell 5%. Copper was up 1.7% while soft commodities were down 1-4%. JP Morgan noted currency trading volume was at an all-time high today with 1,000 trading tickets per second at one point.”