HALISTER1: GBP Pricing 30%-35% Chance of Brexit, Risk Premium to Rise: JPM

GBP Pricing 30%-35% Chance of Brexit, Risk Premium to Rise: JPM

(Bloomberg) -- Expect FX market to build a renewed premium for ‘Brexit’ ahead of the June 23 vote, JPMorgan analysts including Paul Meggyesi write in client note.
  • Added a short cash position in GBP/JPY last Friday; also has short exposure through a long-standing cable put spread
  • Calculate GBP is pricing a 30%-35% likelihood of Brexit; based on assumption, pound would fall to 1.32 vs dollar on a Brexit and rebound to 1.51 following a remain vote; for EUR/GBP, comparable assumptions are 0.85 and 0.755
  • Expect the BOE can ease rates up to 50bp by the end-2016 if the U.K. votes to leave the EU; broadly equal to a 20bp rally in 2Y swaps
  • In the event of a ‘remain’ vote, expect yields to rise; rates probably would only remove any easing already priced, unlikely to move to price any BOE rate rises over the next year given the the uncertain global backdrop
  • NOTE: Enter tactical longs in 1Yx1Y SONIA; enter level adjusted 10s30s gilt curve steepeners as the long-end looks rich, curve too flat, JPM said on June 3
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

People
Paul Meggyesi (JPMorgan Chase & Co)

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