Free Fall: British Pound Hits Three Decade Low, Crude Collapses

Ok, so two things: the British pound and oil.

They’re both crashing.

Let’s turn first to GBP, because it’s sitting near a 31-year low (inset).

“There’s a lot of nervousness in the sterling market,” Commerzbank’s Thu Lan Nguyen dryly remarked on Tuesday morning.

Yes, “a lot of nervousness.” You know, it’s the whole “a 30yr socio- economic alliance at the heart of the post-WWII world” coming to an abrupt end thing (to quote Deutsche Bank). As it turns out, that’s kind of a big deal despite what stocks told you last week.

Brexit’s impact has begun to hit home as three UK property funds threw up the gates amid a wave of redemption requests as investors fret over the prospect of falling real estate prices. As FT notes, “the impact could be wide-ranging since property has become one of the most popular choices for retail investors seeking yield in an era of low interest rates.”

Right. And when it comes to real estate in the UK, there’s a long, long way to fall.

(Charts: Deutsche Bank)

“Given the outflows the sector seems to be experiencing, this could well put downward pressure on commercial property prices,” Laith Khalaf, senior analyst at Hargreaves Lansdown told FT. “The risk is this creates a vicious circle, and prompts more investors to dump property, until such time as sentiment stabilises.” In other words, a self-fulfilling downward spiral.

And by the way, the market has been getting less liquid over time, which obviously presents a challenge to anyone trying to sell into it:

(Chart: Deutsche Bank)

Here’s a midday sterling rundown from Bloomberg:

  • Continuing downtrend, reaching day’s low at NY midday, with GBP underperforming G-10 counterparts; weekly chart shows Cable reaching low since 1985

  • 3rd resistance: 1.3679, June 24 close

  • 2nd resistance: 1.3534/66, June 29/27 high

  • 1st resistance: 1.3350, July 1 high

  • Spot: 1.3059

  • 1st support: 1.3000, psychological

  • 2nd support: 1.1880, May 1985 low

  • 3rd support: 1.0520, Feb. 1985 record low

Turning to crude, today’s rather nasty selloff comes courtesy of good old supply/demand dynamics or, as we like to call it, “reality.” Here’s Bloomberg:

“Crude headed for the biggest decline in almost five months on a gloomy outlook for the world economy and signs that oil stockpiles remain ample.”

“Gasoline stockpiles along the U.S. East Coast surged to a record 72.5 million barrels in the week ended June 24, data from the Energy Information Administration show.”

“‘"The April data raised questions about the strength of gasoline demand,’ SocGen’s Michael Wittner said.

Indeed it does, and futures are reflecting that:

Recall the questions we asked earlier:

“Is it realistic to think that all of these assets can continue to go up at the same time? That is, can risk rally as the yen soars, precious metals rise, and bond yields fall?”

The answer, of course, is no.

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