Well, this turned out to be quite an interesting week. A ‘boomerang’ week. First, we got ‘mayhem.’ Brexit was going to ruin us all. As expected the British Pound was among the biggest losers. The trade weighted GBP declined by 10% in just two trading days.
#Brexit update! The trade weighted #GBP is down almost 10% since Friday, but has not (yet) reached the low of 2008. https://t.co/Y6ICM7jIQc
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jeroen blokland (@jsblokland) June 29, 2016
#Brexit update! The trade weighted #GBP is down almost 10% since Friday, but has not (yet) reached the low of 2008. https://t.co/Y6ICM7jIQc
—jeroen blokland (@jsblokland) June 29, 2016
Banks were also severely hit. In the first couple of days after Brexit Italian banks lost a whopping 27% of their value. Did I mention already that Brexit was going to ruin us all?
Update! Italian banks are down ~27% post #Brexit! #Italy https://t.co/0VYIFI1lBn
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jeroen blokland (@jsblokland) June 27, 2016
Update! Italian banks are down ~27% post #Brexit! #Italy https://t.co/0VYIFI1lBn
—jeroen blokland (@jsblokland) June 27, 2016
Everywhere in Europe (and beyond) banks were discarded by investors. Interestingly, average bank stock prices fell to levels not seen since Draghi’s famous ‘whatever it takes’ speech back in 2012.
Another 'aaaand it gone' chart! Eurozone banks down to 'whatever it takes.' via @enlundm ht @WorthWray https://t.co/NjzislS0mN
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jeroen blokland (@jsblokland) June 27, 2016
Another 'aaaand it gone' chart! Eurozone banks down to 'whatever it takes.' via @enlundm ht @WorthWray https://t.co/NjzislS0mN
—jeroen blokland (@jsblokland) June 27, 2016
To conclude, after two days of Brexit, big UK banks lost more than 30% of their value, Eurozone banks slumped 23%, GBP fell 12% against the USD and Eurozone stocks were 11% lower. Great, thank you United Kingdom.
2 days of #Brexit. Big UK banks down ~30%, Eurozone banks down 23%, #GBPUSD down 12%, Eurozone stocks down 11%! https://t.co/1NS7nQZTY6
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jeroen blokland (@jsblokland) June 27, 2016
2 days of #Brexit. Big UK banks down ~30%, Eurozone banks down 23%, #GBPUSD down 12%, Eurozone stocks down 11%! https://t.co/1NS7nQZTY6
—jeroen blokland (@jsblokland) June 27, 2016
Obviously, Brexit caused bond yields to fall even further. Hence, we got yet another historical yield moment. The UK 10-year government bond yield fell below 1% for the first time ever. By the looks of it, you liked that tweet very much ;-).
In case you did miss it! Today, the UK 10-year bond #yield fell below 1% for the first time in history. #Brexit https://t.co/9yAi8c0qgs
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jeroen blokland (@jsblokland) June 27, 2016
In case you did miss it! Today, the UK 10-year bond #yield fell below 1% for the first time in history. #Brexit https://t.co/9yAi8c0qgs
—jeroen blokland (@jsblokland) June 27, 2016
When yields go lower, you know Switzerland is up front. Hence, this week even the 50-year(!) bond yield dipped below zero, which means that now the whole yield curve is negative. I bet no one would have guessed this was possible a couple of years ago.
ICYMI! The Swiss 50-year bond #yield is now NEGATIVE! https://t.co/0obrWTN8rS
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jeroen blokland (@jsblokland) July 01, 2016
ICYMI! The Swiss 50-year bond #yield is now NEGATIVE! https://t.co/0obrWTN8rS
—jeroen blokland (@jsblokland) July 01, 2016
In an earlier tweet I already mentioned the Swiss bond madness out there. Giving your money to the Swiss government for 50 years earns you less return than giving it to the US Treasury for 1 month! Just imagine…
ICYMI! 1-month Treasuries offer you more yield than the 50-year Swiss government bond. https://t.co/u0Pr6jwxnc
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jeroen blokland (@jsblokland) June 29, 2016
ICYMI! 1-month Treasuries offer you more yield than the 50-year Swiss government bond. https://t.co/u0Pr6jwxnc
—jeroen blokland (@jsblokland) June 29, 2016
Bond craziness equals bond returns. And Japan is an excellent example to show this. At one point this week the year-to-date return-gap between the Japanese 40-year government bond and the Nikkei index measured 70%.
Unbelievable! The YTD return gap between #Japan's 40-year government bond and the #Nikkei is now... 70%! https://t.co/M1ZYu84D3b
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jeroen blokland (@jsblokland) June 28, 2016
Unbelievable! The YTD return gap between #Japan's 40-year government bond and the #Nikkei is now... 70%! https://t.co/M1ZYu84D3b
—jeroen blokland (@jsblokland) June 28, 2016
Let’s move over to the next ‘wow’-graph. No less than USD 11.3 trillion in outstanding government bonds globally comes with a negative yield.
Wow! The amount of negative yielding government #debt has risen to $ 11.3 trillion. via @FT ht @pdacosta https://t.co/OmF3IgaSmW
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jeroen blokland (@jsblokland) June 29, 2016
Wow! The amount of negative yielding government #debt has risen to $ 11.3 trillion. via @FT ht @pdacosta https://t.co/OmF3IgaSmW
—jeroen blokland (@jsblokland) June 29, 2016
In addition, Brexit causes rating downgrades. First the UK, later the Eurozone, as economic and political risks have increased considerable. So, the list of AAA countries grows ever shorter.
The AAA list grows ever shorter! UK downgraded by S&P to AA. #Brexit https://t.co/BDsQJH07vN
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jeroen blokland (@jsblokland) June 27, 2016
The AAA list grows ever shorter! UK downgraded by S&P to AA. #Brexit https://t.co/BDsQJH07vN
—jeroen blokland (@jsblokland) June 27, 2016
And, what about that Fed rate hike this year? Well you can forget about that one. Or next year, for that matter. The Fed futures reveal that investors do not expect a Fed rate hike until 2018.
Investors think the #Fed has joined the growing list of central banks to 'never' raise rates again. #stuck https://t.co/N7lEyvDtW4
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jeroen blokland (@jsblokland) June 29, 2016
Investors think the #Fed has joined the growing list of central banks to 'never' raise rates again. #stuck https://t.co/N7lEyvDtW4
—jeroen blokland (@jsblokland) June 29, 2016
The map below is also pretty impressive. Brexit has created a precedent for other, let’s say, less European Union friendly countries. With my own country being among those with most contagion risk.
Isn't that just wonderful? #Brexit contagion risk via @EurasiaGroup ht @ianbremmer https://t.co/pNJ1NKKZ83
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jeroen blokland (@jsblokland) June 30, 2016
Isn't that just wonderful? #Brexit contagion risk via @EurasiaGroup ht @ianbremmer https://t.co/pNJ1NKKZ83
—jeroen blokland (@jsblokland) June 30, 2016
But now, for the ‘boomerang’ part of the blog. On Thursday something remarkable happened. Within a couple of days after the Brexit capitulation, the FTSE 100 Index rose above its pre-Brexit level. I know, I know, it’s the GBP, right? Well, that certainly helps. The FTSE 100 Index gets about 60% from its sales abroad, But even then you can’t go past the fact that something big has happened and risk has significantly increased. So I’m not so sure about this post-Brexit rally, yet,
Who would have guessed? It's #Brexit's one-week anniversary today and the FTSE 100 index tops its pre-Brexit level. https://t.co/0NT9s5c9xT
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jeroen blokland (@jsblokland) June 30, 2016
Who would have guessed? It's #Brexit's one-week anniversary today and the FTSE 100 index tops its pre-Brexit level. https://t.co/0NT9s5c9xT
—jeroen blokland (@jsblokland) June 30, 2016
Perhaps, investors were anticipating the withdrawal of Boris Johnson as Tory leader? Pretty amazing that you provoke a Brexit and then leave the ‘how to’ for somebody else to figure out.
'Goodbye', #BorisJohnson, 'hello', economic policy #uncertainty. #Brexit https://t.co/9k0RmQQvIl
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jeroen blokland (@jsblokland) June 30, 2016
'Goodbye', #BorisJohnson, 'hello', economic policy #uncertainty. #Brexit https://t.co/9k0RmQQvIl
—jeroen blokland (@jsblokland) June 30, 2016
To follow-up on the ‘glass half full’ approach, Brexit gives the UK everything it needs. GBP down to improve competitiveness, higher stock prices and higher inflation expectations. Brexit realized more than Mr. Draghi did so far.
Forget central bank #QE! One #Brexit sinks #GBP, makes stocks hit a 10month high and lifts #inflation expectations https://t.co/k3DXJjJ1cp
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jeroen blokland (@jsblokland) June 30, 2016
Forget central bank #QE! One #Brexit sinks #GBP, makes stocks hit a 10month high and lifts #inflation expectations https://t.co/k3DXJjJ1cp
—jeroen blokland (@jsblokland) June 30, 2016
Hence, we need more Brexits! To be clear this is a joke.
#Europe needs more '#Brexits!' The FTSE 100 Index future increased 3% since last Thursday. https://t.co/E7yughI0KH
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jeroen blokland (@jsblokland) July 01, 2016
#Europe needs more '#Brexits!' The FTSE 100 Index future increased 3% since last Thursday. https://t.co/E7yughI0KH
—jeroen blokland (@jsblokland) July 01, 2016