Market volatility continues, risk assets selling off - ANZ

David Croy, Senior Rates Strategist at ANZ, notes that market volatility continued on Monday with risk assets selling off and safe havens firmer.

Key Quotes

Equities sold off with more than $4trn wiped from global equity values since Brexit was announced. Today, Euro Stoxx is down 2.8%; CAC 40 & DAX off 3%; and FTSE 100 down 2.6%. Financials are bearing the brunt of the sell-off with the FTSE bank 350 off 16% over the past two days. The S&P 500 started the day grinding lower, breaking below 2000 briefly, before rebounding and levelling out a touch lower.

GBP fell further as S&P downgraded the UK, with Bloomberg reporting that it hit a low of 1.3121, before recovering slightly (recall it was around 1.50 on Friday at 9am NZT). The USD continued to surge ahead, gaining against EUR; AUD; and NZD. Although AUD and Kiwi are lower, we expect losses to be limited and for local bond markets to be well supported as investors rotate out of GBP and European peripheral sovereigns.

Commodity prices were being led lower by oil, with WTI breaking below $46. Gold is up again, but soft commodities were mixed. Bond yields declined, with the UK 2 year down 11bps and 10 year 15bps lower. The UST bull flattened with 2Y down 3bps, 5Y down 7bps; and 10Y down 10bps. European peripheral spreads actually narrowed in what was likely a rebound. We can’t see markets getting in behind the periphery again given the risks the EU faces.