Markets prepare for Brexit volatility
City on alert for fallout from this week’s key votes
BANKERS, brokers, currency dealers and other City firms are drafting in staff to work throughout the day and night on Tuesday, to cope with the aftermath of the Brexit vote.
MPs are expected to reject soundly Prime Minister Theresa May’s Brexit deal in the crunch vote, which some fear could trigger a mass sell-off in UK shares, bonds, sterling and other British assets. The vote comes at the start of what is expected to be a volatile week for shares, bonds, currency and commodity markets.
Mark Horgan, chief executive of foreign exchange dealer Moneycorp, said: “It feels like anything can happen. We always bring in more people to work early and late when we reach one of these inflexion points. It feels like we are in the first minute of the final round [of a boxing match]. There is going to be a fair amount of volatility.”
Last week global markets were thrown into turmoil because of renewed fears about a trade war between the US and China, concern about the health of the US economy, Brexit and the failure of the OPEC cartel to agree production cuts with Russia to support the oil price. More than £60 billion was wiped off the value of the FTSE 100 index of leading UK shares on Thursday.
Tomorrow, the European Court of Justice will rule on whether the UK can unilaterally revoke Article 50 and cancel Brexit, if it chooses to do so. On Thursday the European Central Bank will announce whether or not it will ease off on interest rate hikes, as well as the prospect of it providing more stimulus. Both events are expected to move markets, as are the mounting fears of a trade war between the US and China.
AJ Bell investment director Russ Mould said: “It is looking like it will be a lively week. We have heard stories that people are having difficulty trading sterling. Commodities such as oil are moving because of OPEC. Everyone is trying to second guess the Federal Reserve and the ECB on rates, so I expect things to be volatile. This week’s Brexit vote is the latest on the list of brewing worries. Markets this year have climbed the wall of worry, but the long list of things to be concerned about seems to have all coalesced towards the end of the year.”
CMC Markets analyst David Madden said: “We except this week will be volatile. Even if you leave aside the Brexit vote, we have swings in the oil price and US stocks, the looming ECB interest rate decision and the ECJ ruling to deal with.”
Horgan said that growing uncertainty around Brexit had forced the firm’s corporate and individual clients to take an increasingly short-term view on the direction of sterling. “Clients, judging from their orders, do not have a clue what will happen next. They are hedging everything and taking a very short-term view,” he said.
Elsewhere, on Tuesday the Office for National Statistics is expected to say the unemployment rate remained unchanged in October at 4.1 per cent. Economists also believe it will say the average pay growth rate remained steady at 3 per cent.