Risk indicators across the board have flashed warning signals. The VIX has reached 20.63, just short of the high levels reached on February 11 (20.73) and January 20, both days of extreme turmoil. Our STGRDI* index has reached an extreme of -3.45, the lowest since August 21. The SPX has developed negative divergence and EuroStoxx has breached the support line of a head and shoulder formation. Commodities, where China dominates demand, have broken lower and oil prices have come off their highs as investors reassess global growth projections, coming after the release of disappointing fixed asset investment growth data in China yesterday and the weak US May labour market report hitting screens in early June. Cross-currency basis swaps spreads have widened once again, increasing USD funding costs, which we interpret as a result of USD shortage. Increasing Brexit risks following the release of an increasing number of opinion polls showing the Leave camp leading have increased economic uncertainties. This morning it was The Sun newspaper urging its readers to vote for Leave, which will not help to calm markets ahead of next Thursday’s Brexit vote.
