Halister News

--ADVEITH NAIR

--NAMITHA JAGADEESH

--JANA RANDOW

(Bloomberg) -- Global credit markets are expected to follow overnight moves in FX, equity and govt bonds into weakness after the U.K. voted to leave the EU. Synthetic indexes marked sharply wider in early quotes, Bloomberg strategist Simon Ballard writes.

• iTraxx Crossover currently indicated 437.19 mid (+115bps); iTraxx Main shown at 103.90 (+28.8bps), biggest percentage move since June 2004, Bloomberg data shows
  • Liquidity likely to be non-existent in cash bond mkt this morning as spreads get marked sharply wider across the quality curve with investors sidelined
• Broad risk off, spiking volatility, will impact across credit markets; GBP risk assets likely to underperform near term
  • Pre-referendum rally in corp credit risk expected to be swiftly reversed when market opens; Brexit was on radar, but ascribed decreasing probability in recent days
  • EUR-denominated risk asset pricing may come under pressure as focus shifts to Spanish elections Sunday which may carry additional risks after U.K. vote result and other potential votes being called elsewhere

• NOTE: Simon Ballard is a credit strategist who writes for Bloomberg. The observations he makes are his own and are not intended as investment advice.

(Bloomberg) -- Sterling falls to lowest level since 1985, with volatility surpassing Lehman crisis levels, as the U.K.’s vote to leave the European Union raises speculation central banks will act to calm markets.

• MARKET MOVES
• GBP/USD falls as much as 11% to 1.3229; large orders going through market occasionally, liquidity non-existent at times, traders say
• One-week implied volatility in GBP/USD rises by more than 21 vols to fresh record at 53.16% while realized surges to 39.58%, all-time-high
• USD/JPY briefly drops below 100 to a 2 1/2-yr low; CHF climbs more than 2% vs EUR past 1.07
• ZAR, PLN, MXN slide more than 5%, leading declines among EM currencies,
• WTI crude falls 6% to $47.09
• FTSE 100 futures down 8.9% to 5726.50
• UST 10Y yield -25bps at 1.494%; 2Y -23bps at 0.552%

WHAT’S THE LATEST?

• BOJ Governor Kuroda says will carefully monitor impact of results on markets; six central banks to do utmost to provide liquidity
• Morgan Stanley sees cable around 1.25-30, 15%-20% drop in European equities
• Central banks expected to ensure stability on Brexit impact, with BOJ expected to act more rapidly than others, UBS economist John Wraith says
• UniCredit strategist Vasileios Gkionakis says turbulence in FX markets is raising the possibility of some sort of central banks action; that said, liquidity is very thin which distorts visibility
  • As first step, possible there will be some verbal communication in form of “whatever it takes” to reassure the markets; then some reassessment will be required, Gkionakis adds
• Nordea says SNB likely to intervene to limit haven flows into CHF, with EUR/CHF at 1.0650 being a key level to watch; BOJ likely to step in on a dip in USD/JPY below 100
• U.K.’s credit ratings would be quickly reviewed, “likely with a ‘negative’ bias,” Andrew Colquhoun, Fitch Ratings Head of Asia-Pacific Sovereigns said before the vote result

WHAT HAPPENS NEXT?

• Around 7am: final three results due; once the final area has declared, Chief Counting Officer Jenny Watson will formally announce the national result in Manchester
• ECB Governing Council member Ewald Nowotny said June 16 central bank is ready to provide liquidity; SNB and BOJ officials have said central banks are in regular contact
• Liquidity and orderly functioning of the market is paramount; high volatility could lift expectations authorities will intervene to smooth sharp moves in either direction in GBP, Scotiabank strategist Shaun Osborne says in e-mailed comments
• G-7 statement warning markets they’re vigilantly watching developments expected, TD Securities analyst James Rossiter says; adds that questions likely to turn to how quickly U.K. political uncertainty rises and how long govt can last
• Govt paper on the process of withdrawing from the EU shows U.K. and union members will have 2 years to negotiate initially; period can be extended if all remaining 27 members agree
• Much of debate over a potential exit centers on the ability of the U.K. to sign new trade deals and whether the country becomes a less attractive place to invest outside the EU

--ANGELA CULLEN

(Bloomberg) -- When markets open fully, the implied probability of a BOE interest rate cut this year likely will rise well above 50% vs 25% yesterday, Samuel Tombs Pantheon’s chief U.K. economist writes in emailed comments.

• Current market instability reduces the odds of another U.S. rate hike in the coming months
• Unless a swift deal can be done, the U.K. is likely to enter

recession as businesses hold back from investing, credit costs rise, import prices soar, squeezing households’ spending power * While lengthy trade negotiations with the E.U. will ensue, British exporters’ access to the single market, and to markets in other countries that have free trade agreements with the E.U., would be impaired

• Given that BOE governor Mark Carney has said recession risk, BOE will act soon, though will need some hard data first , Danske Bank analyst Mikael Olai Milhoj writes in emailed comment; August seems like a good option
• NOTE: Pound plunges to lowest in more than 30 years as Brexit looms

--JASMINE WANG