Market Summary-Brexit
27-June 2016
Market Summary
A historic referendum in Britain finally came to a close with the astonishing win from the exit party by 4% (52% leave vs 48% stay).The outcome has sparked series of celebrations among Eurosceptics in the UK and sent shockwaves through the global economy.
The sensational reaction to Brexit has changed the technical condition in the foreign exchange market.
With the fear from Brexit, sterling plunged for 8% to $1.37 and euro spiked through $1.10 with a 2.42% downward retracement.
Global risk-off sentiment escalated the demand for safe-haven currency with US dollar index hiked for 2.2% to the level 95.5. Yen topped as the best performance currency which rocketed to JPY102, a 3.66% upside.
Besides, gold soared for 5.17% to $1318 as investors seek for protection in Brexit fallout.
Fixed income market was no exception in serving its safe house function with U.S. 10-Year Treasury surged by 8.33%.
The post-Brexit global equity lost over $2 trillion. With FTSE100 and Euro Stoxx 50 slipped 3.15% to 6138 and 8.5% to 2779 respectively. Dow Jones Index fell 3.39% to 17400. HK market also posted sharp lost on Friday with its benchmark Hang Seng Index tumbling 2.9% to 20259 at close.
What’s next?
Central Bank’s policies
With the economic shockwaves through global market, some market participants expected the central banks in the world will step up their direct market interventions in the FX market, particularly for BoJ, which have been warning of the risk of intervention since February when yen touches JPY100.
In addition, we can foresee that central bank in the world will increase their “communication policy" to support financial asset prices and lessen volatility in the market.
European Union
There were fears that Britain’s exit would energize Euroskeptics across the region, posing European Union at the risk of breaking up. Indeed, polls in Denmark have suggested that the country would vote to leave if a referendum were held. Furthermore, Marine Le Pen, the head of the National Front in France, said on Twitter: “Victory for Freedom! As I have been asking for years, we must now have the same referendum in France and EU countries.” Similar sentiments were expressed by others across the bloc. Close track on EU is needed in case of sudden “Black Swan” happened.
Britain
How long will it take for the U.K. to actually leave? No country has voted to leave the EU before, so there’s no precedent to judge by. But in theory, it’s supposed to take two years. In this time the U.K. will negotiate with the EU’s other 27 members on how to extricate itself from the bloc. The U.K. remains an EU member, with all the rights and privileges associated with that, until then. (Source: theatlantic.com)
It’s reported that Mario Draghi, the president of the European Central Bank, is scheduled to speak Tuesday morning, we may seek for further insights from the speech.
Action
-Equity
There would be foreseeable uncertainty in short-run given the risk-off momentum remains. However, such a slump also gives opportunity in the collection of quality stock at bargain price, given Brexit actually did not affect any of the fundamentals of particular companies. For execution details need to do in close support with technical indicators.