HALISTER1: U.K. VOTES: GBP Tumbles, Brexit Woes Put Central Banks in Focus

U.K. VOTES: GBP Tumbles, Brexit Woes Put Central Banks in Focus

(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
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

People
Andrew Colquhoun (Fitch Group Inc)
Ewald Nowotny (Oesterreichische Nationalbank)
John Wraith (UBS Global Asset Management Japan Ltd)
Shaun Osborne (Bank of Nova Scotia/The)
Vasileios Gkionakis (UniCredit SpA)

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