Equities recover; Brexit vote is the key event of the week
|After a sea of red across global equity markets on Monday following weak Chinese export data and disappointing Euro industrial production figures, Asian markets managed to rebound early Tuesday with futures also indicating a positive start to European and U.S. equities.
Despite the recovery today, risks remain to the downside especially if more data is received confirming that the global economy is heading into a synchronized global slowdown. That’s why it’s difficult to see positive momentum resuming for the remainder of the week.
From a macro perspective, the main encouraging news is the Fed has returned to being the market’s friend by being patient in considering further tightening in monetary policy, and valuations are much more reasonable than they were three to four months ago. However, these two factors may not be sufficient to fuel a sustainable bull rally.
The Brexit vote will bethemain risk event today as UK MPs decide on Prime Minister Theresa May’s withdrawal deal. The result of the vote may trigger big moves in the Sterling depending on the outcome.
The base case scenario is that there is high expectation of the bill being rejected by UK MPs, but the vote count will serve as guidance on what happens next. If she suffers a loss by a narrow margin, it may be positive news to Sterling, as May can head back to Brussels for more concessions which could beenough to pass the bill in a second “Plan B” vote. However, a loss by a wide margin will make it tricky for Sterling traders asthe bill will be rejecteddue todifferent ambitions. Conservative MPs want concessions that arehard to get from Brussels, meanwhile, hardcore remainers want to reject the deal in the hope that they get a second referendum. This may lead to two extreme outcomes: either a hard Brexit or no Brexit at all. However, given all theuncertainty towards such a scenario, investorsmay sell the currencyand assess the situation later, leading to high volatile moves in the Pound.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.