Global Markets Rebuff Brexit Anxiety

The UKs premier index, the FTSE 100 has broken through its lows of Thursday, 23 June 2016. This welcome news was applauded on markets from Asia through Europe and Wall Street. The All Share Index edged 3.58% higher to close at 6,360 on the day. The net change was +219.67 points, marking a 1.42% appreciation for the index for the month. For the year-to-date however, the FTSE 100 index is 3.93% lower – the best performing index of all the European major markets. The Spanish Ibex 35 index is down 25.32% for the year, although it gained 3.45% on Wednesday, 29 June to close at 8,105.30.

The German DAX gained 1.75% up to 9,612.27 and the French CAC 40 index gained 2.60% to close at 4,195.32. On Wall Street, the gains were equally impressive, with the Dow Jones Industrial Average edging towards 17,700 with a gain of 1.64%, the S&P 500 index gaining 1.70% to close at 2,070.77 and the NASDAQ Composite Index gaining 1.86% to close at 4,779.25. In Asia, markets reacted positively although in a more subdued manner. The Chinese CSI 300 index gained 0.48% to close at 3,151.39, the Japanese Nikkei 225 index gained 1.59% to close at 15,566.83. Overall, Wednesday, 29 June was a bullish day for equities traders and a welcome one at that.

The Performance of the GBP in Currency Markets

The GBP/USD currency pair increased by 0.64%, $0.0086 to close at 1.34 against the dollar, from a low of 1.33 Tuesday, 28 June 2016. For the 12 months ending on June 28, 2016 the GBP has shed 14.59%. The sterling is currently trading in the following range against a basket of currencies:

• The GBP/USD pair is trading at 1.34350, up 0.0083 or 0.62% on the day
• The EUR/GBP pair is trading at 0.82745, down 0.00185 or 0.223%
• The GBP/AUD currency pair is trading at 1.80360, down 0.0001 or 0.006%
• The GBP/CAD pair is trading at 1.73895, up 0.0005 or 0.029%
• The GBP/CHF is trading at 1.31600, up 0.0069 or 0.527%
• The GBP/JPY currency pair is trading at 138.35000, up 1.23 or 0.897%

UK markets appear to be undergoing a buying frenzy at this time, and this has heartened traders across the United Kingdom and continental Europe. Many analysts perceive tremendous value in the price of UK equities, and with the pound being as cheap as it is buying makes sense. With all the bargains on offer, a period of relative calm has descended on equities markets around the world as buyers snap up great deals in anticipation of future appreciation over the medium to long-term.

But not everybody shares the bullish sentiment vis-a-vis the GBP and the FTSE 100 index. There are some who believe that the United Kingdom will remain part of the single market in the European Union, but such sentiments are foolhardy given that the vote went 51.9% in favour of a break from the EU and 48.1% voted to remain part of the European Union.

In the Eye of the Storm

There have been considerable gains for the GBP against a basket of currencies, notably the US dollar. However, it should be remembered that the present exchange rate is well below the pre—referendum rate of 1.48 – 1.50 to the USD. By Monday, 27 June, the GBP had plunged to a 31-year low against the greenback as it went into freefall on currency markets. On the plus side, it appears that the calm that has descended upon currency markets and equities markets around the world is related to the lengthy process of disentanglement that is bound to follow.

Since British Prime Minister David Cameron is unlikely to do anything in the next several months and has deferred to his successor, there is no reason for panic just yet. With so much time before Britain is completely independent of the EU, there is no reason to panic. This period of relative calm is likely to continue for the short-term, but volatility is rife in markets and we are in for a roller coaster ride.