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Volatility is up, the pound is down and the U.K. is heading out. Here are some of the things people in markets are talking about today.
Brexit wins out
After months of waiting, now the real uncertainty begins. The U.K.'s decided it wants to leave the European Union and with no clear blueprint for that process, volatility ruled. The pound swung from its highest to its lowest level in six months during the vote count before weakening to as low as 1.32 dollars as it became clear that Brexit had edged it, in defiance of both the polls and Prime Minister David Cameron, who announced he is stepping down in the wake of the vote. The FTSE 100 fell 8.7 percent at the open, yet on account of exchange rate effects/currency weakness it still managed to be the day’s best performing of the largest EU equity benchmarks, as of 6 a.m. ET.
Liquidity will be provided as needed, was the mantra of central bankers reacting to the vote — and some have already leapt into action. The Swiss National Bank intervened to stabilize the franc, while the Bank of Japan stated its readiness to act to hold down the yen, which appreciated below 100 to the dollar for the first time in over a year. BOE Governor Mark Carney said he's ready to pump 250 billion pounds ($345 billion) into the financial system, as bets on a July interest rate cut climb to 50 percent. The European Central Bank also said it's prepared to provide liquidity as the bloc's currency dropped, by 5.30 a.m. ET, to 1.11 against the dollar.
Flight to havens
The yen was the only G10 currency to strengthen against the U.S. dollar as of 4.46 a.m. ET, rising 3.12 percent as investors fled riskier assets. Amid a stampede to safer assets gold posted its biggest one-day gain since the global financial crisis of 2008 and U.S. Treasuries surged, with benchmark yields falling by as many as 34 basis points, their biggest drop in seven years. Brent crude futures slumped as much as 6.6 percent, as bets of a global recession picked up.
What Brexit means for the Fed
As for the Federal Reserve — all that talk of a June rate hike now seems very far away. "I’m overwhelmed with client questions about the impact on the U.S .and the Fed," wrote Deutsche Bank AG economist Torsten Slok in a note to clients. UBS withdrew its forecast for a 25 basis point hike in September, however it still sees a hike in December.
Euroskeptic politicians across the continent have already seized the chance to demand their own referendums, in the U.K.'s mold. With Spain holding elections this Sunday and a debate on constitutional reform approaching in Italy fast approaching, there are ample opportunities for the secessionist bug to pick up steam. Most notably, Scotland's First Minister Nicola Sturgeon said she will explore all options to secure Scotland's membership in the EU, including a possible second referendum on Scottish independence.
What we've been reading
This is what's caught our eye over the last 24 hours.
- Asset managers are braced for redemptions.
- Here are five markets charts to watch in the aftermath of the Brexit vote.
- When Carney says "additional measures" analysts hear rate cuts.
- Here's the bitter road map for Britain's egress.
- Nationalist parties across Europe feel emboldened.
- How currency traders reacted to the vote.
- HSBC says get ready for stagflation in the U.K.