*China’s yuan weakest vs dollar since 2010:
PBoC fixed yuan midpoint at 6.6375 to the dollar, 0.9% weaker than the 6.5776 midpoint on Friday. Marked weakest fix since December 2010. While PBoC said to have intervened to support yuan in onshore market, some talk the support was not as aggressive as expected. Fits with balance PBoC has to strike in terms of maintaining stability of yuan, but also allowing currency to help growth. One of biggest concerns in Brexit aftermath revolved around dollar strength. Stronger dollar at the center of a number of intertwined negative feedback loops that wreaked havoc on global markets earlier this year, including potential for yuan devaluation. Meaningful yuan depreciation viewed as one of biggest tail risks given ability to unleash a wave of deflationary pressures across global markets.
*Brexit vote unleashes multiple layers of uncertainty:
Brexit vote not surprisingly dominated the weekend press. Biggest takeaway was the multiple layers of uncertainty that seem unlikely to be resolved anytime soon. Still a lot of different messages when it comes to even starting the exit process. Key concern continues to revolve around potential for other countries to press to leave EU. This dynamic also complicates exit negotiations. While some have argued EU should take a hard line with Britain to discourage other countries from thinking that leaving the EU could be an attractive option, also concerns about the economic need to preserve mutually advantageous trade and investment links. No real surprises in terms of coverage surrounding economic fallout. Companies have quickly warned about headwinds for profits, investments, hiring and M&A.
*Usual suspects under post-Brexit pressure, defensives outperform:
Cyclical plays came under outsized pressure for a second straight session. Materials worst performer with fairly broadbased weakness. Industrial metals dragged down by macro headwinds (including stronger dollar).Packaging and chemicals (particularly the TiO2 and agnames; latter on K+S warning) down sharply. Financialshit hard with more yield pain banks. Oil selloff on strong dollar and rising Nigeria production weighing on energy. Macro concerns also saw semis underperform in tech.Sell-side calls exacerbated weakness. Airlines again among worst performers in industrials. IATA warned about permanent downward shift in UK passenger volumes. Machinery space another drag. Several downgrades from JPMorgan. Autos, lodging, and apparel and accessories sold off in consumer discretionary.Restaurants also weak on cautious WSJ article. Defensives outperformed on rates/risk-off. Utilities rallied and telecom ended higher.
*Heavy quant selling exacerbating post-Brexit weakness?:
Some worries that post-Brexit volatility may be driving heavy wave of selling by systematic funds. JPMorgan’s widely followed quantitative strategist, Marko Kolanovic, warned that Brexit could lead to systematic selling of between $100B and $300B in equities. Cautioned against jumping into US equities before these flows subside. Added equity outflows from systematic strategies likely to be comparable to August 2015 and January 2016 selloffs.Bloomberg also discussed this dynamic last Friday, citing comments from UBS derivatives strategist Rebecca Cheong. She noted sales by systematic funds could total as much as $150B over the next few days. Article pointed out that strategies designed to mitigate risk could actually exacerbate downward pressure on stocks as computerized selling ramps up to keep pace with falling prices.
*Not a ‘Lehman moment’, but US equities may not see quick turnaround:
Despite continued pressure on markets, fairly healthy dose of skepticism that Brexit equivalent to a “Lehman moment”. Focus has been on the time that policymakers and companies have had to prepare for possibility of Britain leaving. Credit Suisse also pointed out today that unlike during financial crisis, financial markets not showing signs of stress. Noted EUR/USD basis swap, TED spread, FRA-OIS spreads all acting ok. However, have also been thoughts in recent days US stocks may not see quick turnaround. After Friday’s move, JPMorgan said it sees another 5-10% downside to S&P 500 in near term. In addition, BofA Merrill Lynch noted 6-7% selloff in the S&P 500 would be in line with typical peak-to-trough move seen around non-US macro shocks. However, said rebound could be dampened by policy fatigue and noted valuation headwinds.
*Mixed messages from EU on Brexit timing:
Big area of focus surrounding Brexit vote has revolved around when Britain should invoke Article 50, the never-used provision that sets out terms of a country's separation from the EU. Over the weekend, a joint statement by the presidents of the European Council, European Parliament, the Council of the EU and the European Commission, urged Britain to quickly trigger Article 50 to begin the two-year negotiating process. However, German Chancellor Merkel cautioned against pushing for an immediate Brexit. In addition, WSJ reported today there has been some shift in sentiment in recent days, with senior European policy makers now suggesting Britain should be allowed time to rethink the decision. However, did point out that France continues to take a hardline stance about a quick exit.
*Osborne tries to reassure markets:
Some attention this morning on comments from UK Chancellor George Osborne, his first since the surprise vote by Britain to leave the EU. Noted that vote was not the outcome he wanted, but said authorities ready to deal with the consequences. Stressed that while the vote will likely lead to further volatility in the financial markets, he has been coordinating with finance officials around the world. Also said UK economy is about as strong as it could be to confront challenges country now faces. While Osborne said during Brexit campaign he would have to raise taxes and cut spending if Britain voted to leave the EU, noted today that government should wait until new Prime Minister is in place before deciding on appropriate fiscal response. However, also stressed that action to shore up public finances would still be needed.
*Japanese officials weighing post-Brexit response:
Japanese officials readying potential response if market fallout from Brexit continues. Yomiuri noted policymakers agreed at last Friday’s emergency meeting on a ¥10T fiscal stimulus package should equity weakness and yen strength become protracted. Reuters also said government considering increasing an economic stimulus package that will be draw up later this year to more than ¥10T. Noted government had earlier envisaged a stimulus package between ¥5T and ¥10T. Comes amid separate reports today that Japanese officials recently met to discuss Brexit fallout. Prime Minister Abe reportedly told Finance Minister Aso to take various and aggressive responses to financial and FX markets. Abe said he also expected BoJ to take measures to ensure liquidity and financial intermediation.
*Familiar result from Spain’s repeat election:
Spain’s repeat elections on Sunday delivered a familiar result after December’s inconclusive outcome. Acting PM Rajoy’s conservative Popular Party (PP) gained largest vote share, but did even better vs December. It won just under 33% of the vote and 137 seats, up from 123 seats in December. However, still short of the 176 seats needed to form a government. Socialist (PSOE) party came in second with 85 seats, though down from 90 in December. Antiausterity party Unidos Podemos held 71 seats, while centrist Ciudadanos party secured 32 seats, down from 40 in December. Caretaker Prime Minister Rajoy said he will have foundations in place for a new government within next month. While process will be difficult, some positive sentiment given lack of Brexit contagion in the vote.
*BIS says central banks ready to respond to Brexit; concerned about ‘risky trinity’:
BIS head Jaime Caruana said over the weekend that major central banks stand ready to dampen the market volatility from the Brexit vote. Noted extensive contingency plans have already been put in place. However, also conceded that there will be a period of uncertainty and adjustment. Separately, BIS warned that global economic policy urgently needs rebalancing given “risky trinity” of weak productivity, high debt and little remaining ammunition at world’s leading central banks. Cautioned that global economy can no longer afford to rely on debt-fueled growth that has brought it to its current state. Also warned of the serious consequences for financial markets and the economy if public confidence in policymaking is shaken.
*Bank stress test results should offer some reprieve from Brexit fears:
More discussion about how the Fed’s bank stress test results were overshadowed by the Brexit-driven selloff on Friday. While analysts still more interested in this Wednesday’s CCAR update, when they will get a look at capital deployment plans, DFAST takeaways largely positive, particularly for the money center names. Reutersdiscussed how results should be reassuring to investors worried about banks’ exposure to Brexit. Noted they should take some comfort in the fact that the Fed’s stress test scenarios are much tougher than anything banks have so far faced as a result of Brexit. Article also discussed thoughts bank stock pullback overdone in the wake of the 7%+ selloff on Friday. Noted doubts that Brexit will be equivalent to a “Lehman moment”.
*Does Brexit vote increase chance of Trump victory?
Following surprise Brexit outcome, discussion has turned to implications this may have for US election. Some thought Trump could benefit. NYT noted similarities between his positions on globalization and nationalism with those of Britian’s pro-leave advocates. However article highlighted differences in population diversity between America and UK. Also noted inbuilt Electoral College advantage for Democrats, while strategists pointed to Trump’s divisive personality. In addition Trump continues to lag in some key indicators. Politico noted Clinton building solid over Trump in national polls (6.3 pts in latest RCP average). Also mentioned his campaign is struggling to generate cash while reports continue to linger of an Anti-Trump push to unbind delegates from voting for him in convention’s first ballot.
*Westpac Banking Corp Fully Paid Ord. Shrs (WBC)：
Westpac planner sues bank over investments A former Westpac financial planner is suing the bank, saying he has lost more than $800,000 and is at risk of losing his family home because Westpac gave him bad advice about structured financial products. Trent Daly and his wife invested $2 million in risky structured financial products, known as the Guaranteed Portfolio Service, on the eve of the global financial crisis. They claim they did so because of Mr Daly’s colleagues at Westpac Institutional Bank incorrectly advised him the products were ‘‘capital protected’’ and he would recoup the full initial investment.
*Rio Tinto Limited (RIO)：
Leadership It could be the end of ‘the age of iron ore powerbrokers’. Perth’s resources industry will be stripped of more than 100 years of combined experience following a chief executive level changing of the guard at a number of major resources companies. The country’s resources hub became home to some of the world’s most prominent executives during the past decade, as megaresources projects were developed across the richly endowed state. But a number of factors have created the perfect storm for a round of management changes and some of the city’s biggest resources names are moving on. Last week, Rio Tinto announced its iron ore chief executive Andrew Harding, who had been in the role since 2013 and at Rio Tinto since 1992, would be replaced as part of a broader restructuring of the business by new chief executive Jean-Sebastien Jacques, who steps into the top job at the start of July.
PBoC fixed yuan midpoint at 6.6375 to the dollar, 0.9% weaker than the 6.5776 midpoint on Friday. Marked weakest fix since December 2010. While PBoC said to have intervened to support yuan in onshore market, some talk the support was not as aggressive as expected. Fits with balance PBoC has to strike in terms of maintaining stability of yuan, but also allowing currency to help growth. One of biggest concerns in Brexit aftermath revolved around dollar strength. Stronger dollar at the center of a number of intertwined negative feedback loops that wreaked havoc on global markets earlier this year, including potential for yuan devaluation. Meaningful yuan depreciation viewed as one of biggest tail risks given ability to unleash a wave of deflationary pressures across global markets.
*Brexit vote unleashes multiple layers of uncertainty:
Brexit vote not surprisingly dominated the weekend press. Biggest takeaway was the multiple layers of uncertainty that seem unlikely to be resolved anytime soon. Still a lot of different messages when it comes to even starting the exit process. Key concern continues to revolve around potential for other countries to press to leave EU. This dynamic also complicates exit negotiations. While some have argued EU should take a hard line with Britain to discourage other countries from thinking that leaving the EU could be an attractive option, also concerns about the economic need to preserve mutually advantageous trade and investment links. No real surprises in terms of coverage surrounding economic fallout. Companies have quickly warned about headwinds for profits, investments, hiring and M&A.
*Usual suspects under post-Brexit pressure, defensives outperform:
Cyclical plays came under outsized pressure for a second straight session. Materials worst performer with fairly broadbased weakness. Industrial metals dragged down by macro headwinds (including stronger dollar).Packaging and chemicals (particularly the TiO2 and agnames; latter on K+S warning) down sharply. Financialshit hard with more yield pain banks. Oil selloff on strong dollar and rising Nigeria production weighing on energy. Macro concerns also saw semis underperform in tech.Sell-side calls exacerbated weakness. Airlines again among worst performers in industrials. IATA warned about permanent downward shift in UK passenger volumes. Machinery space another drag. Several downgrades from JPMorgan. Autos, lodging, and apparel and accessories sold off in consumer discretionary.Restaurants also weak on cautious WSJ article. Defensives outperformed on rates/risk-off. Utilities rallied and telecom ended higher.
*Heavy quant selling exacerbating post-Brexit weakness?:
Some worries that post-Brexit volatility may be driving heavy wave of selling by systematic funds. JPMorgan’s widely followed quantitative strategist, Marko Kolanovic, warned that Brexit could lead to systematic selling of between $100B and $300B in equities. Cautioned against jumping into US equities before these flows subside. Added equity outflows from systematic strategies likely to be comparable to August 2015 and January 2016 selloffs.Bloomberg also discussed this dynamic last Friday, citing comments from UBS derivatives strategist Rebecca Cheong. She noted sales by systematic funds could total as much as $150B over the next few days. Article pointed out that strategies designed to mitigate risk could actually exacerbate downward pressure on stocks as computerized selling ramps up to keep pace with falling prices.
*Not a ‘Lehman moment’, but US equities may not see quick turnaround:
Despite continued pressure on markets, fairly healthy dose of skepticism that Brexit equivalent to a “Lehman moment”. Focus has been on the time that policymakers and companies have had to prepare for possibility of Britain leaving. Credit Suisse also pointed out today that unlike during financial crisis, financial markets not showing signs of stress. Noted EUR/USD basis swap, TED spread, FRA-OIS spreads all acting ok. However, have also been thoughts in recent days US stocks may not see quick turnaround. After Friday’s move, JPMorgan said it sees another 5-10% downside to S&P 500 in near term. In addition, BofA Merrill Lynch noted 6-7% selloff in the S&P 500 would be in line with typical peak-to-trough move seen around non-US macro shocks. However, said rebound could be dampened by policy fatigue and noted valuation headwinds.
*Mixed messages from EU on Brexit timing:
Big area of focus surrounding Brexit vote has revolved around when Britain should invoke Article 50, the never-used provision that sets out terms of a country's separation from the EU. Over the weekend, a joint statement by the presidents of the European Council, European Parliament, the Council of the EU and the European Commission, urged Britain to quickly trigger Article 50 to begin the two-year negotiating process. However, German Chancellor Merkel cautioned against pushing for an immediate Brexit. In addition, WSJ reported today there has been some shift in sentiment in recent days, with senior European policy makers now suggesting Britain should be allowed time to rethink the decision. However, did point out that France continues to take a hardline stance about a quick exit.
*Osborne tries to reassure markets:
Some attention this morning on comments from UK Chancellor George Osborne, his first since the surprise vote by Britain to leave the EU. Noted that vote was not the outcome he wanted, but said authorities ready to deal with the consequences. Stressed that while the vote will likely lead to further volatility in the financial markets, he has been coordinating with finance officials around the world. Also said UK economy is about as strong as it could be to confront challenges country now faces. While Osborne said during Brexit campaign he would have to raise taxes and cut spending if Britain voted to leave the EU, noted today that government should wait until new Prime Minister is in place before deciding on appropriate fiscal response. However, also stressed that action to shore up public finances would still be needed.
*Japanese officials weighing post-Brexit response:
Japanese officials readying potential response if market fallout from Brexit continues. Yomiuri noted policymakers agreed at last Friday’s emergency meeting on a ¥10T fiscal stimulus package should equity weakness and yen strength become protracted. Reuters also said government considering increasing an economic stimulus package that will be draw up later this year to more than ¥10T. Noted government had earlier envisaged a stimulus package between ¥5T and ¥10T. Comes amid separate reports today that Japanese officials recently met to discuss Brexit fallout. Prime Minister Abe reportedly told Finance Minister Aso to take various and aggressive responses to financial and FX markets. Abe said he also expected BoJ to take measures to ensure liquidity and financial intermediation.
*Familiar result from Spain’s repeat election:
Spain’s repeat elections on Sunday delivered a familiar result after December’s inconclusive outcome. Acting PM Rajoy’s conservative Popular Party (PP) gained largest vote share, but did even better vs December. It won just under 33% of the vote and 137 seats, up from 123 seats in December. However, still short of the 176 seats needed to form a government. Socialist (PSOE) party came in second with 85 seats, though down from 90 in December. Antiausterity party Unidos Podemos held 71 seats, while centrist Ciudadanos party secured 32 seats, down from 40 in December. Caretaker Prime Minister Rajoy said he will have foundations in place for a new government within next month. While process will be difficult, some positive sentiment given lack of Brexit contagion in the vote.
*BIS says central banks ready to respond to Brexit; concerned about ‘risky trinity’:
BIS head Jaime Caruana said over the weekend that major central banks stand ready to dampen the market volatility from the Brexit vote. Noted extensive contingency plans have already been put in place. However, also conceded that there will be a period of uncertainty and adjustment. Separately, BIS warned that global economic policy urgently needs rebalancing given “risky trinity” of weak productivity, high debt and little remaining ammunition at world’s leading central banks. Cautioned that global economy can no longer afford to rely on debt-fueled growth that has brought it to its current state. Also warned of the serious consequences for financial markets and the economy if public confidence in policymaking is shaken.
*Bank stress test results should offer some reprieve from Brexit fears:
More discussion about how the Fed’s bank stress test results were overshadowed by the Brexit-driven selloff on Friday. While analysts still more interested in this Wednesday’s CCAR update, when they will get a look at capital deployment plans, DFAST takeaways largely positive, particularly for the money center names. Reutersdiscussed how results should be reassuring to investors worried about banks’ exposure to Brexit. Noted they should take some comfort in the fact that the Fed’s stress test scenarios are much tougher than anything banks have so far faced as a result of Brexit. Article also discussed thoughts bank stock pullback overdone in the wake of the 7%+ selloff on Friday. Noted doubts that Brexit will be equivalent to a “Lehman moment”.
*Does Brexit vote increase chance of Trump victory?
Following surprise Brexit outcome, discussion has turned to implications this may have for US election. Some thought Trump could benefit. NYT noted similarities between his positions on globalization and nationalism with those of Britian’s pro-leave advocates. However article highlighted differences in population diversity between America and UK. Also noted inbuilt Electoral College advantage for Democrats, while strategists pointed to Trump’s divisive personality. In addition Trump continues to lag in some key indicators. Politico noted Clinton building solid over Trump in national polls (6.3 pts in latest RCP average). Also mentioned his campaign is struggling to generate cash while reports continue to linger of an Anti-Trump push to unbind delegates from voting for him in convention’s first ballot.
*Westpac Banking Corp Fully Paid Ord. Shrs (WBC)：
Westpac planner sues bank over investments A former Westpac financial planner is suing the bank, saying he has lost more than $800,000 and is at risk of losing his family home because Westpac gave him bad advice about structured financial products. Trent Daly and his wife invested $2 million in risky structured financial products, known as the Guaranteed Portfolio Service, on the eve of the global financial crisis. They claim they did so because of Mr Daly’s colleagues at Westpac Institutional Bank incorrectly advised him the products were ‘‘capital protected’’ and he would recoup the full initial investment.
*Rio Tinto Limited (RIO)：
Leadership It could be the end of ‘the age of iron ore powerbrokers’. Perth’s resources industry will be stripped of more than 100 years of combined experience following a chief executive level changing of the guard at a number of major resources companies. The country’s resources hub became home to some of the world’s most prominent executives during the past decade, as megaresources projects were developed across the richly endowed state. But a number of factors have created the perfect storm for a round of management changes and some of the city’s biggest resources names are moving on. Last week, Rio Tinto announced its iron ore chief executive Andrew Harding, who had been in the role since 2013 and at Rio Tinto since 1992, would be replaced as part of a broader restructuring of the business by new chief executive Jean-Sebastien Jacques, who steps into the top job at the start of July.
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