"Pound Plummets To New Lows;
10Y Gilts Slide Under 1%; British Banks Halted After Crashing"
by Tyler Durden
"After a modestly stronger open, which saw sterling rebound to just under 1.35, the British currency has taken another sharp leg lower in recent trading tumbling another 3%, to a low of 1.3224 - taking out Friday's post-vote lows when the currency plunged over 8% - and dropping to fresh 31 year lows, as it remains under heavy selling pressure as of this moment.
Today's 3%+ drop has added to an unprecedented 8.1% tumble on Friday, which was almost double the 4.1% decline on Black Wednesday in 1992, when the U.K. was forced out of Europe’s exchange-rate mechanism. The flight to safety has meant that gains in U.K. government bonds pushed the 10-year gilt yield below 1% for the first time, while the FTSE 100 slid 1.3%,
And with money rushing into safety, it promptly left the local banks, as a result both Barclays and Royal Bank of Scotland fell more than 10% leading to their stock being halted due to excess volatility.
BARCLAYS HALTED IN LONDON ON VOLATILITY AFTER SHRS FALL 11.5%
RBS HALTED IN LONDON ON VOLATILITY AFTER SHRS FALL 14.2%
"Not helping the local banks was a double-downgrade of Barclays by Jefferies to underperform from buy as its IB operations are too exposed to downside risk on capital and earnings," Jefferies said. The mid-market US bank cut its BARC PT to 115p vs 287p noting that Brexit outcome “changes everything."
It's not just these two banks: the entire UK banking sector is down 13% today, after plunging 17% on Friday, meaning in just two days UK banks have lost nearly a third of their market cap.
Meanwhile, traders were on the sidelines, unwilling to commit capital: “People are finding it difficult to comprehend what Brexit implies for the future- we don’t know yet what the magnitude of the shock will be,” said Steven Barrow, head of Group-of-10 strategy at Standard Bank Group Ltd. in London. “So far, in terms of sterling-dollar, we’ve seen half the decline we’re likely to see this year.”
“We’ve seen so many developments around Brexit over the weekend since the FTSE closed and things are now looking even more concerning,” Angus Nicholson, Melbourne-based analyst at IG Ltd., said by phone. “It’s hard to have any idea about where fair value for the pound should be when you look at the fact that Scotland and Northern Ireland could no longer be part of the U.K. within the next year or two."
Pessimism prevailed: “From here, a 10 percent fall relative to the U.S. dollar seems about right,” Kit Juckes, a London-based strategist at Societe Generale SA, said in a Bloomberg Television interview on Sunday. “The low point will be somewhere between $1.20 and $1.25. However much you want to say the U.K. will survive and calm down, the uncertainty is going to have an economic impact, and the uncertainty is magnified at the beginning by the politics.”
While the shock facing the UK was expected, keep a close eye on Europe's other banks, which as we wrote yesterday will be the true tell if the "market breaks" here: recall that according to Citi's Matt King it is all about the banks... and as of this morning Deutsche Bank just hit a new all time low of 12.30, down 6.5% on the day. Needless to say, if DB goes, all of Europe will follow."
"European Stocks, US Futures Extend Slide On UK Chaos, Pound Carnage"
CNN Money, Market Updates:
And if Europe goes, and it will, guess who's next? This is deadly serious, folks...
I strongly encourage you to read, or re-read, this post from yesterday: