"We’ve Never Had A Shock To The System Like This" – Global Selloff Accelerates On Brexit, Italy, "Unknown" Fears
By Tyler Durden
The flight to safety following last week’s quarter-end window dressing is accelerating, with constant news and flashing red headlines of record low yields across DM government bonds once the norm, and as of moments ago Denmark’s 10Y bonds joined the exclusive club of sub-zero yields; gold has soared to fresh multi-year highs above $1,370, the risk-off currency, the Yen, soaring and sending the USDJPY just above 100, while sterling crashed overnight once again below 1.27, levels not seen since 1985.
European banks continue to struggle and while Monte Paschi was halted up 10% earlier following the previously halted shorting ban, both Deutsche Bank and Credit Suisse have plunged to new all time lows, this time on concerns that the two trouble banks could be forced out of the Stoxx 50 Europe index according to an LBBW analysis while BlackRock cutting the region’s shares to underweight, with a negative view on the euro area’s banking sector, did not help. To be sure, all eyes remain on both Italian banks as well as UK property funds, where the announcement of more gating is widely perceived as imminent.
Indeed, as Bloomberg summarizes, it’s safety first for investors around the world as Brexit, no longer a risk on catalyst as it was a week ago, has instead become a reason to offload risk. Demand for haven assets sent bond yields to record lows after Federal Reserve Bank of New York President William Dudley said Brexit’s significance could escalate if it triggers turmoil in markets beyond the U.K.
Based on overnight analyst quotes, the euphoria is certainly gone by now: “Everyone is trying to react to a situation we’ve never been in before,” said Stewart Richardson, chief investment officer at RMG Wealth Management in London. “We’ve had shocks to the system before, but we haven’t had one like this. And we won’t know the answers for a long time.”
Mitsuo Shimizu, deputy general manager with Japan Asia Securities, also opined saying that there are “fears the global economy will worsen due to Europe. The U.K.’s economic outlook is blurred with uncertainty and the pound’s recent weakness is likely to encourage speculative buying in the yen.”
After rallying last week on bets central banks will work to limit the fallout from Britain’s referendum, global equities are retreating again as the knock-on effects become evident and as central bank credibility and efficiency is once again questioned. Three asset managers froze withdrawals from U.K. real-estate funds on Tuesday following a flurry of redemptions and the Bank of England relaxed capital requirements for lenders. Societe Generale SA Chairman Lorenzo Bini Smaghi said a banking crisis in Italy, stoked by the referendum, could spread to the rest of Europe and rules limiting state aid to lenders should be reconsidered.
As noted earlier, yields continue to plunge: 10-year US Treasury yields fell as much as six basis points to 1.318% and was at 1.33% at 10:44 a.m. London time. Yields on 10-year government bonds in Australia, Japan, Germany, France and the U.K. also …read more
