FOREX.com | Jun 19, 2016 10:02
Brexit fears haven’t stopped British equity market returns outperforming Europe, but now we expect them to dwindle further.
Even a week ago, startling pre-referendum market swerves were largely limited to foreign exchange. British stocks were lacklustre, but their losses since January contained: since March the FTSE 100 and FTSE 350, had ranged no wider than 3 percentage points up or down on the year.
That was before stocks, like sterling, were properly upended by a barrage of pro-Brexit polls, with a higher surprise factor for shares after several moribund months.
The dollar’s unexpected comeback last week from a spate of sketchy economic readings added weight to markets around the globe. But there were few doubts sterling’s sharp moves and wild swings were in lock step with voting sentiment (according to pollsters). And it would be remarkable if the FTSE’s slide wasn’t linked to polls too.
That raises the risk of a vicious circle for equity markets, which could make Wednesday’s bounce short-lived.
On top of higher potential for drawdowns (when whipsaws wipe out collateral) we see 3 main factors that could pile further pressure on the biggest investors to close positions, with outsize market impacts.
Either way brace for a rise in cross-market volatility in the days ahead which won’t spare British stocks, though a clearer swing to Remain would calm markets considerably.
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