Just last week we were commenting on the unprecedented level of complacency ahead of a plethora of June event catalysts, key among which the June 23 Brexit referendum vote. And then everything changed over the past few days, when the Leave camp was seen making dramatic gains in the polls, culminating with yesterday’s Opinium poll that has “Brexit” leading by a remarkable 19 points. That, and of course the 4 central bank meetings on deck, each of which has the capacity to shock and disappoint the markets if one of the world’s central banks says something that markets disagree with. 

But right now it is all about the immediate fate of the UK, and as Bloomberg explains the “jolted markets” and overnight plunge in global risk assets, “growing anxiety over the prospect of the U.K. exiting the European Union dominated financial markets, sending global stocks down for a third day and the British pound to an eight-week low while boosting demand for havens such as the yen and gold.”

“There are many uncertainties, so we could continue seeing declines and touch new lows in the days to come,” said John Plassard, a senior equity-sales trader at Mirabaud Securities in Geneva. “Even though nobody is expecting a rate hike, everyone will look at what Yellen will say at the press conference, and we are 10 days from the Brexit vote, and also days away from the election in Spain, while oil is lower and volatility is the highest in months.”

As we showed last night, the number of hedge fund net short position on cable is the highest since the summer of 2013, which of course means that should the vote go against the “Leave” camp, the short squeeze will be nothing short of spectacular.

Meanwhile, Asia was ugly, with the Yen soaring to its May highs (and the all important USDJPY carry trade plunging as a result) while Asian stocks slumped between 2%-3.5% as investors dumped risk assets ahead of UK’s referendum. The surge in the Yen slammed Japan, and the Nikkei was down a whopping 3.5%, just north of 16,000 as concerns about Kuroda’s (and Abe’s) professional career and tenure mount. China’s Shanghai Composite tumbled the most since February, dropping 3.2%, which is hardly the move those expecting a surge on a potential inlusion of China in the MSCI Index were hoping for.

But the worst was in Europe, where equities headed for the lowest close since February and the pound weakened against all of its 16 major peers after polls showed the outcome of a referendum on whether Britain will stay in the EU was too close to call. The yen rose toward its strongest level since 2014, while the cost of insuring corporate debt against default increased to the highest in more than two months. Oil retreated after a report showed a jump in U.S. drilling rigs, while massively bullish positioning by spec investors threatens a wipeout if and when the selling begins.

And since this “market” is all about momentum, those who were euphoric just days ago, are now panicking: “There are many uncertainties, so we could continue seeing declines and touch new lows in the days to come,” said John Plassard, a senior equity-sales trader at Mirabaud Securities in Geneva. “Even though nobody is expecting a rate hike, everyone will look at what Yellen will say at the press conference, and we are 10 days from the Brexit vote, and also days away from the election in Spain, while oil is lower and volatility is the highest in months.”

Others blame uncertainty: “The market hates uncertainty,” said Yoshinori Ogawa, a markets strategist at Okasan Securities Co. in Tokyo. “Most market participants think that the U.K. will probably remain, but we’re seeing some poll results that show those who’ll vote to leave outnumber the ‘Remain’ camp.”

How dare central bankers allow uncertainty in the market. Please fix it immediately, and make it certain that even more trillions in future growth will be borrowed just to make the P&Ls of people like Ogawa rise some more.

And speaking of central banks, and specifically frontrunning them it goes without saying that global bonds yields fell to a fresh record low overnight, with new all time lows touch in both Japan and Germany, while US 10Y are down 2bps to 1.62% and very likely set to drop far lower as the great rotation out of stocks begins in earnest.

Market Snapshot

• S&P 500 futures down 0.4% to 2079
• Stoxx 600 down 1.5% to 328
• FTSE 100 down 0.4% to 6093
• DAX down 1.4% to 9701
• S&P GSCI Index down 0.1% to 380.8
• MSCI Asia Pacific down 2% to 128
• MSCI Asia Pacific down 2% to 128
• Nikkei 225 down 3.5% to 16019
• Hang Seng down 2.5% to 20513
• Shanghai Composite down 3.2% to 2833
• US 10-yr yield down 2bps to 1.62%
• German 10Yr yield down less than 1bp to 0.02%
• Italian 10Yr yield up 5bps to 1.43%
• Spanish 10Yr yield up 5bps to 1.48%
• Dollar Index down 0.06% to 94.51
• WTI Crude futures down 1.2% to $48.48
• Brent Futures down 1% to $50.05
• Gold spot up 0.7% to $1,283
• Silver spot down 0.1% to $17.31

Global Top News

• Brexit Risk Rattles Markets as Stocks Sink With Pound; Yen Jumps: Bearish bets on sterling are highest in almost 3 years
• Asia Yields Follow Europe’s to All-Time Lows on Brexit Concern: Haven demand accelerates ahead of Fed, BOJ meetings
• Apple holds Worldwide Developers Conference; Analysts expect biggest announcements on Siri, updates to operating systems
• Symantec to Buy Security Firm Blue Coat for $4.65 Billion: cash deal will close around the third quarter of 2016
• Orlando Massacre Shows Cracks in U.S. Bid to Stop Terrorism: FBI had twice interviewed alleged killer for terror links
• Verizon, AT&T Said to Make Final Round Bids for Yahoo: Reuters: co. to start reaching out to bidders early as Monday
• Disney’s Foreign Curse Could End With China Resort Project: Entertainment giant opens Shanghai Disneyland on June 16
• Wal-Mart Names China Head to Replace Andy Clarke as Asda Chief: The change will take place July 11
• Iran to Cut Gasoline Imports With $14 Billion Refinery Expansion: Country to build 5 refineries, expand existing plants
• Merck, Pfizer Double Size of Diabetes Drug Study to Catch Rivals: Medicine cuts blood sugar levels, helps patients meet goal
• J&J Diabetes Drug May Help With Weight Loss: Study: Combo was well tolerated, no new or unexpected safety signals
• Canada Willing to Work With Bombardier on Share Structure: Reuters: Canada is willing to “find a solution” with Bombardier
• Dr. Reddy’s to Buy Generics From Allergan, Teva for $350 Million: products are “complex generics” in various dosage forms, all but one awaiting U.S. approval.
• U.S. Regulator NHTSA Says Tesla Clarified Agreement Language: U.S. safety agency analyzing data on Model S suspensions

Looking at regional markets, we start as usual in Asia, where equity markets traded with heavy losses following Friday’s negative close on Wall St. as the slump in energy prices weighed on sentiment. Energy names were among the underperformers in Nikkei 225 (-2.6%) after WTI crude futures fell below USD 49/bbl while a firmer JPY also soured exporter sentiment. Elsewhere, Chinese markets have conformed to the negative picture in Asia with the Shanghai Comp (-3.2%) crashing on its return from its 4-day weekend and also followed an unexpected decline in Foreign Direct Investment, while Australian markets were closed for the Queen’s Birthday. The Hang Seng China Enterprises Index of mainland stocks listed in Hong Kong fell 2.8 percent, down 4.9 percent over two days.  Finally, 10yr JGBs traded relatively flat despite risk-averse sentiment, although yields were pressured in early trade with the 5yr, 10yr, 20yr and 30yr declining to fresh record lows.

As we noted last night, two out of three key Chinese economic datapoints missed:

• China FDI (May) Y/Y -1.0% vs. Exp. 5.0%. (Prey. 6.0%). (Newswires)
• Chinese Retail Sales (May) Y/Y 10.00% vs. Exp. 10.10% (Prey. 10.10%)
• Chinese Industrial Production YTD (May) Y/Y 5.90% vs. Exp. 5.90% (Prey. 5.80%)

Top Asian News

• China’s Stocks Decline Most Since February on Economic Concern: Shanghai Composite Index dropped 3.2% at Monday’s close
• China’s Economy Steadies in May Even as Investment Growth Slows: Industrial output climbs 6%, retail sales increase 10%
• Asia Yields Follow Europe’s to All-Time Lows on Brexit Concern: Haven demand accelerates ahead of Fed, BOJ meetings this week
• Abe Aide Sees Potential for BOJ Buying Riskier Corporate Debt: Nakahara says JGB buying should rise 20t yen a year
• Richest Indian’s $41 Billion Push Spurs Reliance Bonds to Record: Yield on RIL’s perpetual dollar notes hit record low Friday
• Lotte Scraps $4.5 Billion Hotel IPO as Probes Deepen Crisis: Co. cancels remaining IPO schedule after discussing with arrangers

Europe has suffered from the same risk off sentiment as has hit Asia, and stocks have been pressured as Brexit fears rise amid weekend polls leaning towards the leave camp.  As a result European equities headed for the lowest close since February and the pound weakened against all of its 16 major peers after polls showed the outcome of a referendum on whether Britain will stay in the EU was too close to call. Elsewhere, financials have been among the worst performers in Europe, weighed on the by the global uncertainty, while energy names have been weighed by the move lower in WTI which now resides sub USD 49/bbl.   Despite the soft tone, Bunds remain below 165.00 this morning and continue to trade in a tight range, with supply weighing on the German benchmark as Italians come to market with EUR 7-9bIn. Focus lies on whether the German benchmark will see yields slip below 0%. Similar to last week, global bond yields have fallen with Gilts and Bunds yet again hitting record lows.

The Stoxx Europe 600 Index dropped 1.5 percent at 10:50 a.m. in London. Carmakers posted the biggest decline of the 19 industry groups on the equity gauge, with BMW AG falling 2.1 percent after its sales chief told Automobilwoche that the U.S. market “will stagnate at best” in 2016. Energy companies also slid, led by Tullow Oil Plc, as crude retreated.

Top European News

• Pound Judgment Day Means Either Drop to 30-Year Low or 5% Rally: Remain vote may send pound to highest level this year
• ECB Says Oil-Price Slump Not the Global Boon It Might Have Been: Initial supply-driven price drop reflects slowing activity
• SNB Braces for Brexit Tsunami as Franc Defenses Prepared: Swiss central bank to brief media after policy meeting June 16
• StandChart CEO Cracking Down on ‘Above the Law’ Bankers: Firm addresses staff’s loans to each other, outside businesses
• Putin Could Sketch Deal on Europe Gas Link in Talks With Juncker: Leaders may discuss Nord Stream 2 this week in Russia
• Merkel Presses China on Investment Rules as Li Says No Trade War: Merkel chooses words to limit conflict on trip to Beijing
• Rio Tinto Hires Goldman to Help Privatize Copper Unit: S. Times: Goldman Sachs has sounded out potential buyers

In FX, the early trade in Europe has been dominated by the risk off theme which as kept the JPY — primarily — on the front foot, with the USD/JPY making an initial test on 105.51 lows (from early April). We have managed to hold off this for now, but with the Euro bourses through the Friday lows, all eyes are now on Wall Street, which will dominate trade from here. Fresh losses for GBP as the latest EU polls over the weekend show the leave camp gaining favour again. Now just 10 days ahead of the 23 Jun referendum, the nerves are clearly telling and Cable has been pushed down towards 1.4100 and EUR/GBP now eyeing .8000. Trade in the CAD and AUD has been a little mixed, though with a heavy leaning to the downside, where risk sentiment dominates. EUR/USD is being largely buffered by cross rate flow with no discernible direction of note here. No data of note apart from the OPEC report due out at 11.00am London time, so we CAD may be a little livelier further into the session.

In commodities, WTI and Brent crude futures fell overnight and for much of the European session so far. West Texas Intermediate crude fell 1.1 percent to $48.53 a barrel after Baker Hughes Inc. data on Friday showed that rigs targeting crude in the U.S. rose by three to 328 last week, capping the longest run of weekly gains since August. Iran is seeking to boost output by 600,000 to 700,000 barrels a day over five years from fields in an area west of the Karoun River along the Iraqi border, Oil Minister Bijan Namdar Zanganeh said. Of note, today will see the release of the OPEC monthly report which does often provide volatility. Gold has been strong after Asian participant have entered back into the markets trading as high as $1284/oz looking to make new highs. Silver is currently trying to break through a consolidation area to get to new highs for the month and is currently trading at the USD 17.29 level. Copper prices are up 1.2 % at USD 4,572 on strong volume of 5,796 lots, lead is up 0.3 %, while the rest are weaker with zinc down 1% at USD 2,067.50. Total volume, overnight have been 11,512 lots.

There are no major economic releases on the US calendar today.

Bulletin Headline Summary from RanSquawk and Bloomberg

• Global equities pressured amid softness in financials, while energy names track crude prices lower.
• GBP trades with heavy losses as Brexit fears rise with the latest polls leaning towards the leave camp.
• Light calendar today with no notable UK, EU or US data scheduled.
• Treasuries rally in overnight trading while European equities head for lowest close since February and gold rallies amid Brexit concern; FOMC, BOJ, and BOE rate decisions this week.
• The pound tumbled to the lowest level in two months against the dollar as anxiety about a potential British exit from the European Union continued to build
• Prime Minister David Cameron turned to his traditional rivals in the opposition Labour Party to win over undecided voters with just 10 days to stop Britain from voting to leave the European Union
• A British vote to leave the EU on June 23 would practically guarantee a surge in the franc, popular among investors at times of market stress, according to a Bloomberg survey of 23 economists
• German 10Y yield fell to record-low 0.009% on Friday
• Blackstone Group LP, the world’s largest private equity manager, expects this month to finish raising the biggest buyout pool yet designed to mimic the long-term, buy-and- hold strategy of Warren Buffett
• Investors will get a first hint on Monday about how much Mario Draghi is prepared to pump into the corporate-bond market. At about 3:45 p.m. in Frankfurt, the ECB will report how much it spent on company bonds
• With turnover shrinking at the fastest pace since at least 2006 banks are under growing pressure to either downsize their Asian equity desks or exit parts of the business altogether
• China’s economy steadied in May as factory production held up and consumers and the government offered support against diminishing growth in private investment, which has been hurt by declines in old-line industries such as coal

US Event Calendar

• No major economic data expected:

DB’s Jim Reid concludes the overnight wrap

In Friday’s EMR I discussed how at our Euro LevFin conference the day before one of the questions I polled the audience of several hundred was whether they thought the UK would vote to leave the EU? 83% thought ‘no’ which to be honest could have been even higher based on recent straw polls I’ve done. So it’s fair to say that there has been some complacency on this looming issue. However some of this unraveled in a risk-off day on Friday and then intensified after a shock poll (released late in the day) from ORB for the Independent newspaper (online sampling) showing a 10-point lead for “leave”. Sterling traded as low as $1.4198 in the evening session after being as high as $1.4473 in the morning session. This morning we are at $1.4185 as we go to print. The two weekend polls we’ve seen don’t corroborate this shock survey but show the polling back to being remarkably close with the Opinium poll for the Observer giving ‘Remain’ a narrow lead and YouGov for the Sunday Times giving ‘Leave’ a narrow lead. With 10 days to go until polling day it’s inevitable that the focus on this will step up aggressively from here.

As usual we’ll go through the full week ahead at the end but the highlights are clearly the FOMC conclusion on Wednesday and perhaps the BoJ on Thursday. US Retail sales tomorrow is also interesting and is probably the biggest release since payrolls 10 days ago. As for the Fed the main focus will be on the dots, economic projections and any signalling seen on rates in the statement and Yellen’s press conference. It’s hard not to see a fairly dovish outcome given payrolls and ‘Brexit’ risks but knowing the Fed several members will still want to keep the dots at fairly similar levels. Whether the market believes this is realistic is another matter.

Moving on to an important start to the week in China, the main monthly data dump is already out. Industrial production rose 6% YoY in May, in line with expectations. Retail sales climbed 10% last month (10.1% expected), while fixed-asset investment increased 9.6% YTD (annualised) which was the weakest since 2000 and below any of the consensus forecasts on Bloomberg.

Staying with China, the IMF deputy David Lipton discussed something we looked at in a Credit Bites last week namely Chinese corporate debt. He said that “Corporate debt remains a serious — and growing — problem that must be addressed immediately and with a commitment to serious reforms,”.

Asian markets are weak overnight following on from the risk off on Friday. The Nikkei is down -2.9%, Hang Seng -2.5% and China bourses down just under 1% as we go to print.

Global risk assets were hit hard on Friday with investors turning cautious ahead of the numerous risk events on the horizon. Despite some positive economic data (more on this later), European equities were battered with the STOXX 600 posting its third consecutive day of losses on Friday (-2.44%) and subsequently ending the week down by the same amount. Every sector ended the day lower with Banks (-3.66%), Insurance (-3.32%) and Financial Services (-2.94%) industry groups posting the worst losses likely in part down to rising ‘Brexit’ concerns. In fact, the broad sell off saw all but 17 out of 600 companies in the index end Friday in negative territory. The S&P 500 closed -0.92% but was actually fairly stable all day around that level. Oil fell nearly 3% which didn’t help the global sentiment with highs of $50.72 in the Asian session turning into $48.88 by the US close. This morning we are at $48.44. German 10Y yields got ever closer to zero as they hit fresh all time lows of 0.02% after dropping by -1.2bps on Friday and ending the week cumulatively lower by -4.8bps. Will this week be the one where we see it tip into negative territory?

Interestingly most of the data out of Europe was largely positive on Friday. Germany’s final May CPI number was unrevised as expected (+0.3% mom). Industrial production numbers for April out of France (+1.2% mom vs. +0.4% expected) and Italy (+0.5% vs. +0.3% expected) surprised on the upside. These figures rounded out the industrial production numbers for the Euro Area’s top four economies, with activity expanding in Italy, Germany and France (although it stalled in Spain). Given that these economies make up more than three-fourths of the Euro Area’s industrial output, the numbers so far are certainly positive signals ahead the Euro area figure due next week.

Over in the US, the preliminary June reading for the University of Michigan Consumer Sentiment Index clocked in slightly above expectations at 94.3 (vs. 94.0 expected) but still fell from the previous month’s one-year high of 94.7. Consumers’ optimism about their personal finances was offset by concerns about continued economic growth. While the year ahead expected inflation rate of 2.4% in June remained unchanged from May, long term inflation expectations fell to their lowest levels in nearly fifty years with consumers expecting an average inflation rate of just 2.3% over the next five years (down from expectations of 2.5% recorded in the prior two months).

Away from the data expect there to also be a big focus on the Fed’s revised dot plot projections which we’ll get at the Wednesday meeting along with Yellen’s press conference. Meanwhile over at the ECB we’ll hear from Nouy today and Nowotny on Thursday, before Draghi is scheduled to speak late afternoon on Friday. Meanwhile, Spanish PM Rajoy is due to hold a televised debate today ahead of the June 26th election which could be worth keeping an eye on.