In the wake of the UK referendum, stocks & bonds are making a valiant comeback. All the swirling controversy & suspense has created a risk rally. This was reflected across the markets, with the pound rising to its highest level this year. Crude also made a surprise comeback, reaching close to $50 a barrel. European shares rose to their highest level in over two weeks, while gold continued to decline. All this financial turbulence is predicted to either settle or get drastically worse once the referendum results are announced.
Market Recoils in Response to UK Referendum
“You can’t really rule anything out before tomorrow,” said Thomas Thygesen, SEB AB’s head of cross-asset strategy in Copenhagen. “The issue will be how the outcome is perceived and how the biggest stakeholders react. Even just the absence of bad news may be the start of a risk rally, and markets have been rising in the anticipation of this.”
Recently investors around the world have been extremely cautious, with all eyes fixed on Britain’s heated debate. Multiple governments & central banks have openly stated that Brexit could be detrimental for global economic growth & would further destabilize financial markets. This pessimism was reflected in U.S. stocks, which jumped to its highest level of volatility since February. The Remain movement took the lead in two opinion polls conducted on June 21st & 22nd. This gave some much needed optimism to global traders, but the fight won’t be over until the referendum results are made public.
In the midst of the referendum controversy, a trading frenzy is already underway. The sheer volume of shares changing hands in the European index reached new heights. They are now 40% higher than the last month’s average. The Stoxx Europe 600 Index also rose a whopping 1.2% while Britain’s benchmark FTSE 100 Index made a 0.9% advance. Another 1% was added to S&P 500, which put them only 25 points away from their May 2015 record. Bank stocks reported their best day in four weeks, with Citigroup Inc & JPMorgan Chase & Co. experiencing a 1.8% increase.
Other European countries shared this new stroke of optimism. Shares in Turkey, Poland & the Czech Republic climbed more than 1 percent. The MSCI Emerging Markets Index recovered by 0.6%, continuing its 3.7% four day rally. This has them poised to reach their highest close since June 9th.
Increases were also seen in raw materials & employment. Producers of raw materials rallied for the 6th time in seven sessions. Crude oil made a rebound with West Texas Intermediate for August rising up to 1.2% at $49.70 a barrel. According to the Labor Department the number of people filing for unemployment benefits fell by 259,000. They still advice investors to be extremely cautious given the volatile state of the economy.
The pound & sterling are back with a vengeance. The pound gained 0.6% to $1.4796. This puts it on its strongest level since January. The sterling mimicked the pound when it gained 1%. This swell has put U.K.’s currency at 3.8% versus the dollar.
This massive upswing is the result of traders protecting their assets in uncertain times. The overnight pound dollar surge reached new records as traders frantically sought immunity from these wild price swings. This gauge reached a shocking 119.7%, the highest since Bloomberg began analyzing the data in 1998. All this drama showcases the deep seeded fear that Brexit might actually win. The dust won’t settle until the referendum results shine some clarity onto Britain’s hazy future.