Today was ugly, make no mistake the markets were not expecting this – this is almost a complete surprise to most traders, instos & hedge funds & the consequences could be disastrous for Hedge Funds who may had positioned themselves heavily for “remain”. The ramifications will not be known for a while, but these events do tend to see some (highly leveraged)funds blow up– which can accentuate the move sin certain asset classes. We will hear more about that in the coming weeks I’d say... Here's an excerpt from The Coppo Report
EU Referendum: Brexit Vote Results
STAY votes 15,908,640 48.2%
LEAVE votes 17,114,552 51.8%
379 of 382 voting areas declared
1. The ASX 200 was smacked -182 points or -3.46% , but managed to close at -180 points or -3.42% value was large at $10.3 billion – with a lot of block trades going through. - over $1 billion !!!!
2. Today's fall was the 9th biggest fall in the market in 6 years (since 2009) and the worst one day fall in 9 mths
3. Value today massive at over $10 billion - only 4 days in the last 7 years (since 2009) have we seen over $10 billion days..
4. Also today was the biggest daily value in 5 years - since August 2011
5. Well there you go – just when we thought we could move on the Brits decide to stuff up the markets – and boy did they stuff it up.
6. Today was ugly, make no mistake the markets were not expecting this – this is almost a complete surprise to most traders, instos & hedge funds & the consequences could be disastrous for Hedge Funds who may had positioned themselves heavily for “remain”. The ramifications will not be known for a while, but these events do tend to see some (highly leveraged) funds blow up – which can accentuate the moves in certain asset classes. We will hear more about that in the coming weeks I’d say..
7. This will see huge volatility (the VIX futures went from 16 to 26 ) & if you are going to buy then day 3 is normally a good time to have another look, but let’s wait until then see what comes of all this. This is a political drama – not an economic one – but it could become an economic event,. Still once all the dust settles
8. To so many of us.......you may ask - Why does it matter to me? Why should I care if the Brits vote to 'get out'? If the Brits vote for an “exit”, it will most likely have an initial negative reaction and impact on equity markets around the globe. The whole European Union experiment will come under scrutiny and some are saying that this would be the beginning of the end for the EU. Why would Germany bother staying & subsiding the rest of Europe ??
9. This vote to “Exit”, will kill the confidence in the euro . A collapsing euro will have chilling effects across the continent and will certainly cause the US$ to spike, and a spiking dollar is not what the FED wants or needs right now....
10. At the macro level, the departure of Britain would obviously put the future of one of the world’s major trading blocs at risk at the Aussie level it wouldn’t help companies like Brambles, Amcor, Henderson, BTT and any company deriving earnings from this side of the world. The detail of the 2 year treaty renegotiation would be bad enough and would be a minimum Greenland took 3 years of talks basicallyonly on fishing rights.
11. This also why BREXIT is at present really blowing up the markets short term – the consensus view is that the polls are wrong & bookies right– BUT was wrong - & many fund managers world wide are NOT positioned for this& we are seeing a massive re- risking event..
12. With the UK leaving we could see...
13. Initially aggressive selling + Hedge Fund shorting UK anything British
There are fears that the UK equity market could be sold off as much as -10% to -15% as PE derating of up to 10% due to the “uncertainty” plus earnings decline from softer UK GDP.
UK rates cut need to support to UK economy
Gold would rallies hard
The pound gets smashed maybe a 15-20% depreciation of the GBP as capital inflows slow + uncertainty
There are estimates an exit would see UK GDP fall from 2% to below 1% over the next 12 to 18 months
Euro lending for the UK would be off the agenda –thus less borrowings available.
Germany then hitting the exit – they are not going to fund the whole thing.
We then see across Europe - a round of referendums which could be very destabilising for European financial markets – which could spread across international markets (remember how world markets were held hostage to Greece for so long)
Going to the back of the line in trade agreements, with partners like the US.
14. Don’t forget the US has one of its biggest trading sessions of the year tonight with the re balancing of the Russel 2000. It will be very very whippy..
15. Here at about 2.45 the S&P Futures went limit down, when they got to -5.1% and all trading was immediately halted – you could buy but not sell – then at 3.25 we saw buying come in & that lifted the S&P 500 futures off their -5.1% limit down back to -4.75%. So then may be halted again later tonight, if they get back to -5.1%
16. Dow Futures down -650 points or -3.70%, (low was 17,200 -700 points or -3.90%)
17. The moves we saw in some markets was amazing we had..
18. Asian markets .. ugly Japan -7.2% -as the YEN soared +4.6% vs US$ (which is exactly what the BOJ don’t want as it stuffs up their export led recovery)
19. Hong Kong -4.70%, China -1.2% & Korea -3.4%
20. UK futures smacked down -8.1%.
21. UK Pound vs US$ smashed -9.7% -The plunge leaves the currency on course for its worst day on record, and compares with the 4.1% drop on 1992’s Black Wednesday, when the pound was forced out of Europe’s exchange-rate mechanism -- the previous biggest daily drop
22. Gold soared +US$71 or +5.7%
23. U.S. Treasuries as investors piled into haven assets. with yields falling the most in 7 years. U.S. 10-year note yields fell 20 basis points or -11% to 1.50%. The 5 Year US Treasury note fell -22 points or an extraordinary -19% to 0.97% The last time yields dropped more was in March 2009.
24. Japan’s 10-year bond yield slid to an unprecedented minus -0.215%.
25. Australian 10 year yields fell an amazing -19 points or -8.5% down to 2.05%, even Dirt Hartgo when he came here 400 years ago didn’t see Bonds that low..
26. At 1.30 in the arvo - ASX notice: immediate increase in SPI margins from $6100 to $8500 !!!
27. I have below the US futures limits basically -5% now you can BUY just can’t sell. At 11.30pm tonight they re open at 11.30am now if each of these levels are breached they stop trading for 15 mins a Level 1 (7%) or Level 2 (13%) decline occurring after 9:30 a.m.Eastern and up to and including 3:25 p.m. Eastern, or in the case of an early scheduled close, 12:25 p.m. Eastern, would result in a trading halt in all stocks for 15 minutes
Bell Potter is a member of the Bell Financial Group (BFG) of companies. We are one of Australia's largest full service stockbrokers and a leading financial advisory firm, offering a full range of services to private, corporate and institutional...