Why Brexit? #3 [Reality Calls]
Global stocks surged on Monday as a new poll suggested the UK may remain in the EU, but one analyst warned of a volatile pound currency ahead. Video provided by TheStreet Newslook
In this June 13, 2016 photo, traders Richrd Deviccaro, left, and Frederick Reimer work on the floor of the New York Stock Exchange. (AP Photo/Richard Drew, file)(Photo: Richard Drew, AP)
Stocks jumpedMonday on Wall Street, building ona massiverallythat began abroad, as investors reacted to fresh polls that showthe"Remain" campis gaining momentum inthe"Brexit" vote, a shift in sentiment that boosts oddsand raised hopes that Britain will stay in the European Union.
The Dow Jones industrial average, which had been up 271 points early, closed up 130 points, or 0.7%, at 17,805.The broader Standard & Poor"s 500 stock index gained 0.6%and the Nasdaq composite added 0.8%.
The new polls have boosted investment sentiment, whichis shifting away from the risk aversion that marked last week"s trading, when investors fearing a UKvote thisThursdayto leave the EU sold assets thatwould be hurt most by the uncertainty and economic downside of aBrexit, such as stocks, commodities, and the British pound and banks.
But fresh poll results released this weekendthat show voters that want to stay in the EU are gaining momentum and edging into the lead versusthe "Leave" camphasraised hopes among investors that a Brexit is less likely.Two polls conducted for theMail on Sundaysaid 45% of the respondents wanted to stay in the 28-member EU, and 42% wanted to leave. ASunday Timessurvey conducted Thursday and Friday said 44% wanted to remain, and 43% wanted to leave.
"Brexit momentum is turning to "stay" in the final days of the campaign," and that is prompting investors to reverse the bearish bets theyhad put in place last week when risks of a Brexit were higher,Daniel Clifton, ananalyst at Strategas Research Partners whospecializes in politics and policy, told clients.
Markets are rallying on the hopes that a Brexit won"t happen. In Europe, theFTSE 100 index in London soared 3.0%, wiping out its 1.5% drop from last week. The British pound, which has been getting hammered recently, rallied more than 2%.Similarly, the DAX in Germany jumped 3.4% and the CAC 40 in Paris rose 3.5%. The global rally began in Japan, where the Nikkei 225 jumped 2.3%.
Still, Clifton warnedthat the Brexit vote is still too close too call andif traders now betting on Britain staying in the EU get surprised Thursday with a vote to leave, risk will come back into markets in a hurry. A Brexit is feared by markets as it is likely to cause a spike inuncertainty and is seen hurting the U.K. economy and other economies around the world.
"After last weeks re-pricing of a higher risk that Brexit could actually happen, many of the financial indicators we look at are reversing this morning to reflect the change in sentiment that Brexit is less likely to occur," Clifton said."If this trend continues through the week and we get a surprise vote in the other direction on Thursday, the market will not be priced in for the change in outcome. Although the momentum has really shifted, we would note that the vote is still close and there are many undecided voters."
The Brexit vote will likely be the main financial market event this week until the winner ofThursday"s vote is revealed, Gina Martin Adams, equity strategist at Wells Fargo Securities, notes.
"Stocks are likely to remain volatile as the "Brexit"vote takes placethis week," Adams says."The potential damage to risk tolerance with a "Leave"vote is the bigger and less quantifiable risk to stocks, particularly as such a vote willkeep markets in limbo waiting for a UKgovernment response to the vote. Conversely, a relief rally from a "Stay"vote should help U.S. cyclical stocks (or those that benefit from a stronger economy)play a bit ofcatch up to defensive (stocks).
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Source: http://www.usatoday.com/story/money/markets/2016/06/20/stocks-dow-monday/86130556/
