Markets Show Resolve In Wake of Brussels
March 23, 2016
The stock market sell-off in the hours following the Brussels attacks gradually unwound itself over the course of yesterday, with most stock markets closing slightly higher by the end of the day.
Currencies behaved slightly differently, with the Euro Sterling cross rallying and staying strong, as the thought process seems to be that a Brexit is more likely as this event pushes Brits to question Europe's security capabilities – though whether that logic carries any weight is completely up to you.
Up until yesterday, the Brexit had largely been priced into the market, but yesterday's events have pushed the markets to become a little more nervous. We're still three months from the vote though and we do think that the market and the public will have discounted yesterday's attacks by then. We still think the bigger immediate factor on what is and isn't priced in will come next Wednesday when the 23rd June is covered in the three month implied volatility measures.
Another thing to consider is the Boris factor. Mr Johnson will be grilled by select committees over his claims that the City will be better of outside of Europe – a huge claim, given the amount of euro asset clearing that takes place in London – and also on his claims that the UK could enter into Canadian style trade deals with Europe immediately after an exit. His performance today could be seen as much as an audition for him as future Prime Minister as it is for a UK-less Europe.
Across the Pond, Hillary and Donald won again last night. They both took the Arizona nominations and Trump also got the nod in Utah, whilst Bernie Sanders overwhelmingly won the Democrat nomination in that state. They're now at the half way line in terms of who has voted and who is left to vote. Bernie Sanders believes that from now on the majority of states favour him over Hillary, but even if he wins every primary from here to the party convention, he could still lose the nomination.
North of the border, Canadian PM Trudeau is looking to put an end to his conservative predecessor's austerity policies and create a budget that aims to help grow the economy whilst oil prices remain on the floor. He believes that an end to austerity “puts people first and delivers the help Canadians need right now”. Within the budget will be more resources to resettle another 10,000 Syrian refugees following the successful campaign to resettle 25,000 by the end of February.
Overnight, investors have been treading cautiously and markets look to have closed very slightly lower at the close of the session. There's been a default by Mongolian Mining corp, who missed a principal and interest payment, reminding investors that even with a 50% recovery in the price of oil in the last two months, commodity prices are still a source of immense pain and investment risk.
Today is reasonably quiet, but that Boris Johnson grilling will be closely watched by most of the Square Mile.
Have a great day.