Notes From Underground: The Paroxysms of Brexit Polls, Or Lies, Damn Lies and Statistics

This is a week loaded with data. The U.S. retail sales numbers are reported tomorrow and it will take a tremendous increase in consumer purchases to put any pressure on the June FOMC meeting to raise rates. Currently, the market consensus is for a 0.4% increase in core sales and I would venture a guess that it will take an increase of more 1.0% to move the needle on any talk of June being on the table. There are several British inflation numbers released tomorrow morning but with the Brexit vote next Thursday and a Bank of England meeting this Thursday there will be no change in BOE policy. Wednesday of course brings the FED and again the retail sales number would have to be very robust to move the FOMC. It ain’t going to happen. Wednesday night and Thursday morning brings the Bank of Japan and the Swiss National Bank into focus. These two banks are more interesting as the recent strength in the Swiss franc and the Japanese yen provide some rationale for each of these banks to increase monetary stimulus to drive the respective currencies lower . However, both the BOJ and SNB will be careful not to roil the markets ahead of the BREXIT vote. Yet the Japanese seemed to be perturbed over the G-7 signaling its anger at the Japanese for its previous efforts to weaken the YEN. The Japanese authorities are not happy with the recent cut in Korean interest rates which have resulted in a weakened Korean won.

Also, the euro/yen cross has reached three-year lows as the yen has continued to gain in value against the EURO,where Mario Draghi’s ECB has intervened. The most interesting cross is the CHF/JPY (Swiss/yen). This cross is currently below the January 15, 2015 level when the Swiss shocked the market and announced it was no longer intervening to maintain the 1.20 peg on the EUR/CHF. The low that week was 114.09, meaning it took 114 YEN to buy a Swiss franc. Today it takes 110 yen to buy a Swiss franc. The Swiss were again noting that the currency was overly strong against the euro because of the Brexit vote fears. (The EUR/CHF has now closed below the 200-day moving average for the third consecutive session.) BUT if the SWISS is overvalued (SNB WORDS) then the YEN is extremely overvalued by a similar metric. The YEN has retraced all of its losses against the Swiss from the day of the massive Swiss franc rally. Both the YEN and CHF are considered haven currencies and react to risk-off environments.

With the recent slowdown in Japan and the drop in the Nikkei index, the Japanese authorities must be getting nervous. The Japanese bond market is being shunned by large financial institutions as Japanese sovereign debt is yielding negative interest rates. I wonder if the Japanese act unilaterally and mimic the SNB by purchasing large amounts of foreign assets. The G-7 and the Chinese would frown upon this, but if the SNB can continually intervene by purchasing foreign assets then why not the BOJ? The SNB and BOJ statements will be very interesting. Look for nuance from the BOJ because Abe and Kuroda will be careful ahead of Brexit.

***Let 100 Brexit Polls Bloom. In a previous post I issued a warning about the volatility that will be caused by the proliferation of polls by public and private organizations over the BREXIT vote. Every day we get new polls showing the rise and fall of Brexit and every change brings violent movement across a broad range of asset classes. The British pound appears the most sensitive to the latest poll but it has the ability to move the YEN, SWISS, GOLD, and, of course, the SPOOS. The most interesting asset is the British gilts, which are testing record low yields made on February 11. If the BREXIT vote prevails then why are British bonds which are not part of the ECB purchase program retaining the recent rally? If the Brexit vote was really so detrimental to the future of the U.K. then the GILTS OUGHT to be getting SOLD. With every POLL indicating an increased propensity to leave the EU the GILTS make me question the reliability of all the statistical data being broadcast in social and corporate media. Again, TRADE WITH FERVOR,INVEST WITH FEAR.

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13 Responses to “Notes From Underground: The Paroxysms of Brexit Polls, Or Lies, Damn Lies and Statistics”

  1. Chicken Says:

    I don’t view entry into the EU as a positive for any country, but what do I know.. I rest my case based on past results. ha!
    A central banker’s “work” is NEVER done.

  2. Asherz Says:

    The 10 year German Bund has joined the elite pool of sovereigns who are being paid on their debt by the lucky purchasers, with over 10 trillion dollars of such debt now outstanding.

    There once a small, very poor village in Poland called Chelm. There are many stories of the stupidity of its mythical inhabitants.

    A new story.
    The elders of the city gathered together in the village square, with a great quandary. Their problem was that they had been spending more on village expenses than they had been able to collect from their poor citizens. But hearing on the one radio in town, owned by the “richest” member of the council who had the liquor concession, that there was something called negative interest rates, they came up with a plan to solve their debt problem.
    “Gentlemen” said the wisest of the elders, “this is what we will do. We will issue bonds that are three times the amount of all we produce in Chelm, and the interest we will get paid will take care of our deficit.”
    And all of the elders looked at their wisest man in wonderment and admiration.
    And so it was.

  3. Arthur Says:

    Geopolitics + central banks = $1,400 Gold this Summer?

    • yra Says:

      Arthur–that is Soros and Gundlach levels and may well be —I am closely watching the Gold/Yen which is sitting on the 200 day m.a. which is interesting as the YEN is by pure fundamentals and not a risk off vehicle a problem currency as its bond market is absolutely a massive problem but I respect the uncertainty of brexit as a force temporarily supporting the Yen

  4. Trader 1 Says:


    Understand your point – “If the Brexit vote was really so detrimental to the future of the U.K. then the GILTS OUGHT to be getting SOLD.”

    Could the market also be pricing in massive BOE intervention for a yes Brexit vote? (Picking up where ECB leaves off) BUT to your point you have made often in 2=2-5 , the BOE is actually BACKED by something called Britian.

    • yra Says:

      Trader–yes the BOE is backed by Englandbut i don’t think the market is pricing in intervention for the other variables in Europe are not pricing to that

  5. Dan DeRose Jr Says:

    Yra, the gilts are curious indeed. Does a large trade deficit, a 10% depreciation of the currency on a trade weighted basis, and record low yields for gilts add up to a troubled UK economy? Methinks not; it might be the apple of every central bankers eye. Hey, do you think Boris Johnson will someday get recommended for a statue in Trafalgar Square to accompany George Soros?!

    • yra Says:

      Dan–good points and i think i saw him posing for it yesterday.Amazing how 1992 the results were deemed to be so positive but it seems the elites are basing their current stance by how much they have invested in the EU—“now you can’t leave”

  6. Frank C. Says:

    I find George Soros positions very intriguing. We all know he broke the British Pound in 1992.

    Is he foreseeing a re-run of the same with Brexit?

    He states he is short the S&P and long gold. This trade is textbook if you foresee BREXIT leaving.

    He is not saying he is short the sterling. But that does not mean he is not. Or long the long USTreasury bond.

    I think the trade would also include short Portugal, Spanish and French bonds, but for Mario Draghi & the ECB.

    So if Britain votes to leave it wreaks havoc on world stock markets and Europe related currencies. Gold is up. US treasuries up. Stocks down. Sterling down.

    Yra, you are in Chicago. You know they count votes in Chicago and other places. I am not so sure the Brexit vote count may be something like Chicago or Russia. The powers that be want to remain in power and they are the ones counting the votes.

    We all know about the hanging chads and how that worked out.

    • yra Says:

      Frank–that was my point on Thursday night when I suggested that the trade was to be long Bunds and short the other sovereign debt futures which has worked for the last two days–but as I write tonight be cautious as the ECB will be preserving its intervention power to wait for brexit vote.Be ware the hedge funds and their private polls

  7. Frank C. Says:

    This article on Soros confirms my above contentions he is very short on the sterling.

    Soros is looking for the sterling to decline 15%. Greater than the decline in 1992.

    Maybe that was Soros that covered the pound last Friday and today.

  8. Frank C. Says:

    Here is Soros’ full editorial from the Guardian.

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