Global markets shocked by the UK vote to leave the EU - Westpac

Westpac's FX Strategist Imre Speizer provides a comprehensive wrap of last Friday's madness in the markets, noting that global markets were shocked by the UK vote to leave the EU.

Markket Wrap

Global market sentiment: Global markets were shocked by the UK vote to leave the EU. The negative reactions were deepest by mid-afternoon Sydney time, with London and NY sessions consolidative. The S&P500 closed down 3.6%, the Eurostoxx 50 down 8.6%, and the FTSE 100 down 3.2%. Commodities and interest rates fell while the US dollar rose.

Interest rates: The US 10yr treasury yield reacted to the unfolding vote result by falling from 1.75% to 1.40% - a four-year low – but it partly recovered in NY to 1.58%. The 2yr fell from 0.78% to 0.50% (a 14mth low) before partly recovering to 0.65%. Market pricing for Fed rate hikes fell sharply, the July and September meetings now given a 10% chance of a cut, and hikes not expected until early 2018.

Currencies:  The US dollar outperformed all apart from the yen, the index (DXY) initially rising by around 4% to a four-month high, but consolidating in London/NY. EUR initially fell from 1.1427 to 1.0922 (four-month low) but later recovered to 1.1160. It opens this morning at around 1.1030. GBP clearly underperformed, falling from 1.5018 to 1.3229 – the lowest level since 1985 – before consolidating in a 1.3600-1.4000 range in London/NY. It opens this morning at 1.3500. The yen outperformed, USD/JPY falling from 106.84 to 99.02 (three-year low) before retracing to 103.26. AUD fell from 0.7648 to 0.7306 (one-week low) but recovered to 0.7611 in NY. NZD similarly fell from 0.7300 to 0.6974 (one-week low) before recovering to 0.7159. AUD/NZD fluctuated in a sideways range between 1.0430 and 1.0530