Good morning,

It never rains, it pours

I think the less said about then football the better but, in the past 4 days England has lost a Prime Minister, Shadow Cabinet, England team boss, £100bn off its major stock market and its AAA credit rating. I’m just waiting for the day that we find out the Queen really is a lizard. Sterling continued to press to fresh 31 year lows yesterday on the political circus in Westminster and the continued uncertainty as to what is actually going on? Osborne’s reassurance to the markets lasted all of an hour before the selling restarted with banks taking the majority of the beating.

Banks have been the main focus for a number of reasons; the issues around passporting their regulations through the EU, the additional highs costs of setting up new offices in Dublin or Frankfurt, worries over bank funding models in a world that may see further negative interest rate policy from central banks and, for some, the prospects of an additional Scottish referendum as well.

Sterling is not correlated to bank shares as it was back in 2008 but both are tied to the overall risk profile that remains rather negative, to say the least.

The Leave campaign’s thoughts that a bounce back in the pound and economic sentiment is not entirely without merit but what needs to drive that is data from the UK economy; the earliest of which we will not get for 5 weeks or so.

Once again we must also reiterate that the reaction of the Bank of England when it comes, is unlikely to be one that means to materially strengthen sterling but instead one that makes sure that additional falls in the value of the pound are made in an orderly fashion.

Pressures in Tokyo

The yen has had a torrid night, weakening against most of the G10 following a statement from Prime Minister Abe that he will be watching currency and stock markets carefully and that he remains concerned over the risks to them. Bank of Japan Chief Kuroda refused to be drawn on the prospects for an emergency meeting of the Japanese central bank and the yen has taken a knock on the belief that some form of yen intervention.

Meetings in Brussels

David Cameron is on his way to Brussels to begin a summit of EU leaders for maybe the final time. The 2 days of meetings will see Cameron involved today but not tomorrow as the leaders come together to discuss the reaction to Brexit. Noises from Europe have been clear on the unlikelihood that additional concessions or negotiations are likely unless Article 50 of the Lisbon Treaty is enacted; something that seems very distant for now.

Comments or headlines from this will be zeroed in on by those looking for additional sterling weakness.

The environment is going to remain very challenging for sterling assets in the short term and, although contagion globally seems to be low at the moment – US bonds bid higher with global equities a touch weaker – we must be wary of what is around the corner of this political bouncy castle.

Have a great day

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