It all started at exactly 5:01 pm ET Thursday evening. That’s when the following headline hit the terminal:
-
NIGEL FARAGE: LOOKS LIKE REMAIN WILL EDGE IT: SKY
Hallelujah. This week’s risk-on sentiment was justified after all. They’ll be no “Brexit” on our watch. Take that, anyone long yen.
Then, exactly one hour and 53 minutes later, we got this:
-
U.K. POLL ON EU SHOWS 44% REMAIN, 45% LEAVE: OPINIUM
Here’s what happened with cable:
Put simply: it all fell apart after that.
As it became more and more clear that in fact the “leave” vote was likely to prevail, the pound dropped to its lowest levels against the dollar since 1985 and fell an astounding 12% against the yen at one point. US equity futures plunged. CNBC made poor Kelly Evans come back to the studio. Michelle Caruso Cabrera, looking bleary eyed, was over in London, awake at God only knows what time it was there. The Nikkei collapsed.
We’d be remiss if we didn’t survey the damage. You need to get a good lay of the land.
Let’s start with Asia and Europe where Germany is notably weak, off more than 6% as of this writing:
Do note, however, that only some of these indices are back to February lows. Just a reminder before you think about buying the proverbial dip.
Next, let’s look at European banks. Besides the Nikkei, that’s where you’d really expect the pain to be. Sure enough, it’s a bloodbath. Deutsche (which investors are already concerned about) is down some 16%.
How about US banks? Well, they’re not as bad as their European counterparts, but the picture isn’t pretty by any stretch of the imagination:
Moving on, have a look at the yen. We’ve been warning about a steep yen rally for months on safe haven flows. We’ve also been keen on pointing out that the Bank of Japan can do nothing right in traders’ eyes at this juncture. Throw in a dovish Fed and the setup was perfect. Overnight, the USDJPY crossed 100. Sterling simply collapsed against the Japanese currency.
Needless to say, the malaise carried over to Wall Street where stocks dove at the open. Meanwhile, the broad dollar is up sharply, as expected.
Finally, crude is down sharply, gold is surging, and...
...the yield on the US 10-Year is down a whopping 16 bps:
Much more to come. For now, we’ll close by reminding you that less than 24 hours ago we asked the following question: “Is it time to load up on Treasurys?”
Yes. Yes, it sure was.
