Fear-based trades sent markets to extreme levels in a short space of time and they have snapped back. Gold soaring to two-month highs typified the level of market anxiety. It’s sharp reversal has typified the sentiment reversal.
The course-reversal across markets has seen everything that was doing badly, do the best and everything that was doing poorly, outperform. That means banks, particularly debt-laden peripheral European and Brexit-exposed UK banks are ruling the roost. Homebuilders are also amongst top-risers.
One of the triggers for the change in market sentiment appears to be the suspension of Brexit campaigns following tragic killing of MP Jo Cox. The suspension of campaigns just means Brexit can temporarily move to the sidelines. The killer is reported to have said “Britain First” before shooting the MP, who was a strong believer in Britain remaining in the European Union. If true, it could tarnish the image of pro-Brexit supporters.
The confused feedback loop between oil and equities ensued as ‘risk-on’ sentiment saw both markets rally, with oil having snapped a five-day losing streak.
The flow of funds is palpable evidence of Brexit fear in the market. Figures from Bank of American Merrill Lynch show the second biggest weekly outflows from UK equity on record.
A report from The Energy and Climate Change Committee suggesting National Grid (LON:NG) be broken up into an American-style operator system has seen shares shed 1%. Tesco (LON:TSCO) shares rose amid a rise in broader markets after announcing the sale of Dobbies garden centres.
US stocks look set to open basically unchanged following a day that saw the biggest daily gain after a loss of over 100 points for the Dow Jones Industrial Average since February.
USA pre-opening levels
S&P 500: unchanged at 2,077
Dow Jones: 4 points higher at 17,737
Nasdaq 100: 1 point higher at 4,425
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