Wednesday 22 June 2016

Brexit countdown started

The market yesterday has completely ignored the speech of the Federal Reserve Janet Yellen, as the countdown for the British referendum already started. According to members of the election committee, the first results will start to appear on Friday morning, and finally all will be clear "for breakfast."
The prolonged waiting period is over, and yesterday it became quite clear how much the markets are zombified by the referendum: they did not even pay attention to the Yellen's speech to the Senate. In part, this indifference, of course, due to the fact that the Fed has lost confidence and made mistakes, as a result of which investors do not pay attention to the comments of the Central Bank, and monitor the incoming data.
The quote of the week belongs to Yellen, who said yesterday that "the Fed does not rely on a statement of intent", as, indeed, the markets. The head of the central bank is still optimistic about the US economy, but she is worried about the situation in China, as well as the prospect of Brexit; while in Bloomberg agency noted a slight downward change in forecasts for the economy.
According to some sources, the voting results will appear throughout the night and early Friday morning, while all regions are showing varying degrees of support for Brexit or staying in the EU. Of course, if the key regions demonstrate a clear desire to leave or stay, and the result will differ sharply from the expectations, the market will make some conclusions, that will lead to large-scale movements.
In addition, we should also consider the fact that the referendum is not binding, so even in case of victory of Brexit supporters, in the near future it could not change anything, as in accordance with Article 50 of the Lisbon agreement negotiations could drag on for two years. It is not excluded, that history will repeat itself with the referendum in France and the Netherlands on the EU Constitutional Reform in 2005, where people voted against it, but it still was held.
The Brexit scenario is almost completely excluded from the price, there is now more skewed towards the scenario that involves the preservation of the UK's membership of the EU. It will be worse if Brexit wins, especially if it's with a small difference - we'll have to bite our nails all night on Friday from tension. The probability of large-scale price volatility in the case of Brexit increased as the market has not really believe in such possibility. This means that it will be difficult to justify the reaction of traditional patterns of behavior during the key events of "sell on the rumor, buy on fact".


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