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Sea of red

Published Monday, June 20th, 2016

This is what traders were faced with for the large part of what was a highly volatile week for risk assets as sentiment was dominated by the heightened prospect of a Britain leaving the EU. Jitters surrounding the fallout from a potential Brexit reached a new high last week after the latest polls consistently gave the lead to the Leave campaign and for the first time the threat of departure became a very real possibility. As markets woke up to this realisation, investors scrambled to position themselves ahead of this week’s crucial vote which triggered sharp swings across financial assets.

Stock markets suffered particularly badly from the ensuing bout of risk aversion and spent most of the week on the back foot. A brief rebound towards the latter part of the week failed to reverse losses which were led by a whopping 6% fall on Japan’s Nikkei 225. The FTSEurofirst 300 lost 2.2% over the same period while shares on Wall St brushed off the latest mega tech deal following Microsoft’s purchase of LinkedIn and slipped by more than 1%.

The prevailing risk-off environment sparked a rush to safety and perceived havens registered solid gains at the expense of their riskier peers. It may have been a long time in the making but 10-year German Bunds finally made their entry into the negative yield club after yields dipped to a fresh low of -0.032%. Equivalent bonds from the UK and Japan also plumbed record lows while those on US Treasuries dipped to a four-year trough. Gold was another winner from the cautionary mood as it added 1.9% on its way back above the $1,300 level and the Japanese yen came out on top against the dollar with a 2.6% weekly advance.

Away from the Brexit debate was a slew of monetary policy updates from a number of rich-world economies including the US, Japan, Switzerland and the UK. Central bankers from these respective countries all stood pat for fear of rocking the boat ahead of this week’s major risk event. The issue of Brexit was however never too far from their thought process as they took the opportunity to unanimously reiterate their concerns of the downside risks it poses to the global economy.

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Posted by Stephen Brennock

Stephen Brennock joined PVM in 2013 after having worked as a project manager for a business development firm. He graduated with a degree in Business Management in 2007.