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Scott Barlow

A roundup of what The Globe and Mail's market strategist Scott Barlow is reading this morning on the Web

The June 23 UK referendum on EU membership is the most immediate cause of market volatility but there are other major issues costing hedge fund and pension fund managers a lot of sleep. In the case of Brexit, a poll released this morning shows the Leave campaign with a two percentage point lead . The Washington Post described the dalliance with independence as "knowingly committing economic suicide."

"Global Central Banks Sound Brexit Alarm as 'Leave' Jitters Grow" – Bloomberg
"@Ian_Fraser "Nations don't usually commit economic suicide but in Britain millions seem ready to give it a try" @washingtonpost pic.twitter.com/suoXMWzS2F ' – Twitter
"BoE: 'Leave' vote is 'perhaps global' risk to markets" – FastFT
"A background guide to "Brexit" from the European Union" – (includes for and against summary) The Economist

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The inexorable downward slide in global bond yields is also creating investor anxiety. Switzerland's 30-year bond yield went negative overnight and the extended foray into negative yields is crushing profits for European banks Like Credit Suisse and Deutsche Bank.

Not pulling any punches, U.S. hedge fund manager Conor Sen tweeted , "Perma-ZIRP [zero interest rate policy] is a good way to ensure the ruin of all public pension plans."

"Global Bonds Entering New Abnormal as Japan Leads Yield Meltdown" – Bloomberg
"Europe's Largest Banks Slump to Record on Brexit Concerns" – Bloomberg

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The most underrated risk to global markets, in my opinion, is the rise of the Japanese yen. There remains a vast but unknowable sum of speculative funds implementing the yen carry trade – borrowing money in yen, and exchanging it to buy U.S. and other developed world assets. The rising yen creates losses for the carry trade – the loans get more expensive to repay – and this could cause an unwinding process that involves selling the long positions to repay the loans.

"Yen Surges to Almost Two-Year High as 'Brexit' Storm Gathers Force" – Wall Street Journal

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All of these risk factors have created extremely fragile markets. Bloomberg cites research from Bespoke Investment Group in "There Have Almost Never Been This Many Global Stocks in Decline",

"'The net reading of our International Benchmark Breadth Indicator over the last four trading days is –79!' the analysts write. 'For some perspective, the most negative four-day reading we have recorded for this indicator over the last ten years is –84 with only three other days where the four-day A/D line was more negative than Tuesday's reading.'"

It's particularly rare to find such an extreme negative tilt in this metric when the S&P 500 is within spitting distance of its 52-week high.

"'In this instance, one could argue that U.S. stocks are beneftting from a flight to quality trade at the expense of global equities,' writes Bespoke."

"There Have Almost Never Been This Many Global Stocks in Decline" – Bloomberg

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Bank of Canada governor Stephen Poloz continues to provide optimistic thoughts regarding the Canadian economy, noting his belief that the country is on the precipice of a capital spending and capacity expansion boom,

"'Sure enough, exports have taken a step back in the past couple of months, validating our cautious analysis,' Poloz said. 'Even so, the levels of several export categories have shown good progress.'"

"Poloz Calls for Patience on Signs Canada Recovery Is Intact" – Bloomberg

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Tweet of the Day: "@conorsen If fixed income portfolio managers really believe DM govt yields will be zero forever, the right move is to find a new line of work." – Twitter

Diversion: "Almost everyone who is unhappy with life is unhappy for the same reasons" – Quartz