Greetings,

We begin by revisiting the situation in the UK, starting with some market developments.

1. The British pound took another hit Monday morning, reaching a multi-decade low. The currency was recovering slightly as of early Tuesday morning. We are in uncharted territory.

Source: Investing.com

To put this dislocation in perspective here is Friday's GBP move compared to other markets.

Source:  ‏@NickatFP

2. The FTSE 250 index, which has less international exposure than the FTSE 100 (and thus more exposed to the UK economy), got smoked.

h/t @fastFT

3. We saw a spectacular selloff in Barclays Bank shares - 2 days in a row of 17%+ declines. RBS shares didn't do much better. Some view this as a buying opportunity.

4. The 10yr gilts yield hit a record low falling below 1% for the first time.

Next, let's take a look at a few headlines.

1. Central bankers are nervous.

Source: @FT

2. Scotland's leadership is rather upset with the EU Referendum outcome.

Source: Independent

3. Poland is asserting itself with the EU, asking the bloc to adjusts its rules with the hopes to bring the UK back under a different set of conditions.

Source: Yahoo.com

4. S&P pulls UK's AAA rating.

 

Source: WSJ

Continuing with Brexit, here are a couple of voter demographics charts.

1. Age and education were the primary determinants of the vote.

Source: Politico

Below is a scatter plot of education levels and support for Brexit. Amazing.

Source: Goldman Sachs​

2. What were the reasons for the individual EU referendum vote? Note that the economy was not the driver behind the "Leave" vote.

Source: Goldman Sachs, Ashcroft Polls

One of the sources of the current uncertainty is the possibility of a contagion elsewhere in the EU.

Source: Morgan Stanley, ‏@joshdigga

Source: Deutsche Bank, ‏@joshdigga

Analysts are scrambling to figure out the impact on industries, other economies.

1. Here is a potential impact on Asia.

Source: Natixis, ‏@joshdigga

2. Below is a broader impact under a couple of scenarios.

Source: Morgan Stanley, ‏@joshdigga

3. And this is a sampling of UK's industries negatively impacted by Brexit.

Source: Goldman Sachs

Next, we take a look at what the EU Referendum did to some government bonds yields around the world.

1. Here is the 40yr JGB yield hitting another record low.

2. Is the French 10yr bond yield also headed for negative territory? Is the EU related sovereign risk absorbed by the ECB?

Source:Investing.com

3. Australia's 10yr government bond yield fell below 2%.

4 .Here is the Swiss 30y government bond yield ...

... and the 10yr Bund yield.

5. The 10yr treasury yield remains below 1.5%.

One of the key market uncertainties generated by the UK's vote is the impact on the banking system. European bank shares took another leg down on Monday.

At the same time, Eurozone loan growth continues to gradually improve. With EU banks under pressure, will this growth stall?

Source: ECB

In particular, the markets are highly concerned about Italian banks, as the shares give up over 9% on Monday.

Source: Investing.com

Italy is trying to come up with a bailout scheme to keep the banking system afloat.

Source: Reuters

The nation’s painfully slow economic recovery, however, is not helping the situation.

Source: Deutsche Bank,  ‏@joshdigga

1. Turning to emerging markets, Russian government bonds are doing quite well through this mess, with the yield now down from last Thursday. Investors are hiding out in EM debt.

2. In fact, EM credit outperformed US corporate debt. The chart below compares EM HY bonds with US HY corporate bonds.

Source: Ycharts.com

3. The Mexican peso took a hit on Monday, after a partial recovery during the day Friday. The dollar now buys over 19 pesos.

1. Turning to credit/equities, Japanese investors have no choice but to buy US IG corporate debt.

2. The US HY market is under pressure again.

Source: @FT

3. US transport shares took a significant hit.

Source: Ycharts.com

In the hedge fund world, many are annoyed with how close to month/quarter end the Brexit vote took place. There is no time to recover from the hit before investor reports are due.

Source: @bfly​

1. Switching to commodities, speculative net long positions in gold remain highly elevated.

2. WTI crude oil traded below $46/bbl on Monday (a key technical support level).

Source: Investing.com

3. European cocoa, sugar prices were up sharply on the weakness in the British pound. 

Source: @barchart

Source: @barchart

4. Iron ore was up nearly 6% and steel prices jumped on announced steel production curbs in China (over the weekend). It is assumed that iron ore production should be down as well.

Source: @barchart

Source: @barchart

Finally, let's look at a few development sin the US economy.

1. US service sector PMI misses forecast, pointing to only a 1% GDP growth in Q2.

Source: @MarkitEconomics

2. The above is inconsistent with the Atlanta Fed's GDP tracker (GDPNow) which is forecasting 2.6% for the quarter. Someone is significantly off.

Source: @AtlantaFed

3. The Dallas Fed employment index for the Texas manufacturing sector shows further deterioration in the state's labor market.

4. The Fed's policy action probabilities for 2016 show higher chances of a rate cut than a rate hike.

Source: CME Group

5. There was an uptick in the overnight bank funding rates. This is not a big deal for now, but is important to watch for signs of deterioration in liquidity conditions.

 

6. The Fed's RRP (reverse repo program) balances are likely to spike at quarter-end as window dressing becomes especially important.

7. US financial conditions are starting to tighten, though the move thus far has been modest.

Turning to Food for Thought, we have 3 items this morning:

1. Workplace injuries by time of day in the US.

Source: @BLS_gov, @JmBadalamenti

2. Which articles in Wikipedia get edited the most?

Source: ‏@FiveThirtyEight, @JmBadalamenti

 ‏3. Smoking vs. income level.

Source: @flowingdata, ‏@JmBadalamenti