Friday July 1 2016 Housing and Economic stories

TOP STORIES:

Europe-Heavy Hedge Funds Brace for Pain - (www.wsj.com) While some hedge funds have profited from the pain crippling global markets since Britons voted to exit the European Union, more funds may be facing potentially heavy losses. The reason: Many hedge funds were buying European shares in the days ahead of the vote, according to a client update from Goldman Sachs. The note from the firm’s prime brokerage division, shared with investors on Friday, said Goldman saw “notable net buying” ahead of the referendum. “Europe has been the most net bought region…for six straight weeks,” Goldman said, referring to hedge-fund clients who both bought shares and ended bearish trades. The note is based on activity of Goldman’s clients.

Mexican peso: eye of the EM Brexit storm? - (www.ft.com) For a sense of where emerging markets could be heading in the wake of the financial shockwaves set off last week by the UK’s vote to leave the EU, one might do well to keep an eye on the Mexican peso. As the world’s eighth most-traded currency, the Mexican peso is often used by investors as a proxy for less liquid EM currencies. This makes it vulnerable to large sell-offs during times of stress as a hedge against long positions in EM. It’s easy “tradeability” – some $135bn worth are traded around the clock each day – made the currency one of the main whipping boys in Friday’s global sell-off. The peso briefly sank to a new record low of 19.5187 against the dollar on Friday on the back of a 7.1 per cent decline. While the currency ultimately cut its losses to end the session 3.8 per cent lower at 18.9278, that still marked its biggest one day drop in nearly five years.

US junk spreads rise most since 2011 - (www.ft.com) The risk premium investors demand to hold the debt of the lowliest-rated US companies jumped on Friday by the most since Standard & Poor’s cut America’s credit rating in 2011 as investors sold junk bonds and piled into Treasuries in a hectic day of trading. The spread on high-yield US bonds jumped by 47 basis points to 6.39 per cent, according to the BofA Merrill Lynch US high-yield index. The climb was the biggest since August 8, 2011, when the S&P 500 index plummeted by 6.7 per cent as investors reacted to ratings company S&P stripping the US of its top-notch “AAA” rating. Prior to that, the spread, or the difference in yield between corporate bonds and US Treasury bonds of the same duration, had not risen by such a wide margin since the financial crisis in 2008, BofA data show.

Brexit vote sends new shocks through financial markets, political chaos deepens - (www.reuters.com) Britain's vote to leave the European Union continued to reverberate through financial markets, with the pound falling to its lowest level in 31 years, despite government attempts to relieve some of the confusion about the political and economic outlook. UK finance minister George Osborne said early Monday that the British economy was strong enough to cope with the market volatility caused by last week's "Brexit" referendum which has resulted in the biggest blow since World War Two to the European goal of forging greater unity. "Our economy is about as strong as it could be to confront the challenge our country now faces," Osborne told reporters.

European Dead-Cat-Bounce Dies - Big Banks End Lower - (www.zerohedge.com) Well that didn't last long. With hopes of a face-ripping ride higher this morning as Draghi jawboning lifted bank stocks and Cable, the bounce was nothing but an opportunity for sellers to escape at better prices. While Deutsche eked out a tiny gain, RBS, Unicredit, Credit Suisse, and UBS all tumbled to end the day red... And Cable has rolled over notably... back below 1.33!

OTHER STORIES:

U.S. Stocks Fall With Global Shares, Pound on Brexit; Gold Gains - (www.bloomberg.com)
S&P cuts UK's credit rating by two notches after Brexit - (www.reuters.com)
Bank Shares Drop as Analysts Weigh ‘Brexit’ Impact - (www.wsj.com)

Government Bond Yields Sink as Investors Flock to Safety - (www.wsj.com)
Bearish Bets on Mexico Peso Surge as Brexit Concern Spurs Hedges - (www.bloomberg.com)
Despite Leaders’ Assurances, ‘Brexit’ Leaves Markets Nervous - (www.nytimes.com)