Brexit reignites Mining GFC

Advertisement

Brexit is threatening to reignite the Mining GFC. The US dollar was strong:

tvc_6583b95ea05c3aa8fb97c21399962974

Yen too, euro not so much:

tvc_523f29445812f5a0493bd79571e2adca

Commodity currencies were pummeled:

Advertisement
tvc_b2e3beda08d913cfd28cac8a874a8811

Gold edged up:

tvc_1e97f4ccf7f220a6a14847abc5f5f937

Oil took a solid hit:

tvc_f96eb7b9d06e1bd184ed66741b1a04d4

Base metals eroded:

Advertisement
tvc_0bfdb6f560e5f6f510885aa37575a384

Big miners were hammered and appear on the verge of breakdown:

tvc_0c82861f5d0e46ba06d857c7e76e58df

US and EM high yield debt was hit again and looks toppy:

Advertisement
tvc_d9671ab535c1eab5c236f029b0d4b54f

Markets appear to be one decent positive break in the oil market from tumbling along with the Brexit panic. Equities managed to bounce back after a goodly drop but sentiment is tumbling among fundies, from BofAML:

Advertisement

With two weeks to go and Brexit firming more volatility is inevitable. Central banks are preparing, from Reuters:

The European Central Bank would publicly pledge to backstop financial markets in tandem with the Bank of England should Britain vote to leave the European Union, officials with knowledge of the matter told Reuters.

The preparations illustrate the heightened state of alert ahead of the June 23 referendum, which will help determine Britain’s future in trade and world affairs and also shape the EU. The pound and euro have lost value on fears a Brexit could tip the 28-member bloc into recession.

Such an announcement from the ECB would come on June 24 if an early-morning result showed that British voters had chosen to leave the EU, according to the sources. The aim is to underpin investor confidence across Europe and contain further market jitters.

“There will be a statement to do whatever it takes to maintain adequate market liquidity,” said one senior central bank official, who spoke on condition of anonymity.

The ECB’s pledge would involve opening so-called swap lines with the Bank of England, allowing euros and sterling to be exchanged and effectively making unlimited funding in both currencies available to European banks, the sources said.

The ECB and Bank of England declined to comment.

But that would be useless to prevent a deterioration in the Mining GFC given it would only boost the US dollar further as the dominant trade will have to “sell euro”.

Advertisement

It will take the Fed moving to QE4 to pull it up and that surely can’t come before a nasty accident.

About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.