ANALYSIS: Bracing for peak Brexit

Added 10th June 2016

The vote on Brexit is now less than two weeks away and markets are increasingly feeling the ill effects of the uncertainty.

ANALYSIS: Bracing for peak Brexit

After trying in vain to shake off the yoke of the disappointing US jobs number for May in the early part of the week, markets saw substantial losses towards the end of the week as the risk off trade kicked into high gear.

And, as IG market analyst Joshua Mahony said on Friday: “It is particularly notable that while European indices have seen substantial losses, the US markets are have managed to claw back some early losses, highlighting proximity of the link between today’s selling and the fear of a Brexit.”

Currency volatility

On a similar theme, Miton multi-asset fund manager Anthony Rayner said the increased volatility is making itself felt most clearly in the currency markets.

“Looking at the sterling vs the dollar, the most recent spike in volatility has been driven by a convergence in the polls and compounded by the subsequent increased focus on the complex implications of a ‘leave’ decision,” he said, adding: “A new industry has sprung up interpreting the polls, the biases, the margins for error and how the undecided are most likely to vote, depending on their age, socioeconomic group, etc.”

It is not, however, only within currency markets that worries over a possible British exit from the EU are being expressed. As Bank of America Merrill Lynch pointed out in its latest Flow Show report, there have been 18 straight weeks of EU equity outflows & outflows from UK equity funds in 12 of past 14 weeks.

“In essence, the EU referendum is a binary, single day risk event.”

However, it is important to ensure one keeps an eye on both the Brexit wood and the broader trees, especially as the level of noise within markets is only going to increase further from here as markets head toward 23 June.

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Geoff Candy

Group digital editor

Geoff Candy joined Portfolio Adviser as News Editor in May 2014. He has been a financial journalist and broadcaster since 2005 and, in that time has worked in both South Africa and the Netherlands, covering everything from high street retailers and construction companies to mining and insurance.

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