The Week That Was: A Look at the Markets’ Sentiment Prior to UK’s “Brexit” Referendum.

Britons have decided to leave the European Union. The 52% leave votes won over the 48% that voted to remain. The results: market drops wiping $2Trillion off world markets and British Pound hit a 31-year low a day after. But, let’s take a look back at how global equities performed on the voting date, June 23.

Global Equities

Last June 23 – the day UK citizens have to decide whether to stay or in EU – investors remained optimistic of getting the “Bremain” decision of the most-awaited referendum in UK.

US equities were mostly lower throughout the week awaiting for the result of the referendum. Some players in the market are awaiting for the data from US Fed Chair Janet Yellen speech during semi-annual Monetary Policy Report to Congress. Yellen stated that “the pace of improvement in the labor market appears to have slowed more recently, suggesting that our cautious approach to adjusting monetary policy remains appropriate.”

Yellen also noted that the considerable uncertainty about the economic outlook still remains, and that the UK vote to exit the European Union could have significant economic repercussions. These, among others, were reasons that the Fed would continue to closely monitor global economic and financial developments and their implications for domestic economic activity, labor markets and inflation.

European shares initially rallied as investors remained optimistic about a “Bremain” result. Polls indicated that the remain vote would win out likewise supported the positive sentiment. June 20, investors were optimistic on two weekend opinion polls that showed the Remain vote had regained its lead moving towards the referendum on Thursday.

June 21, ECB President Mario Draghi said to the European Parliament’s committee that “uncertainty remains high and downside risks are still significant due to the continued fragile state of the global economy and geopolitical developments.” He added that they would “closely monitor the evolution of the outlook for price stability. We stand ready to act by using all the instruments available within our mandate, if necessary, to achieve our objective. In particular, the ECB is ready for all contingencies following the UK’s EU referendum.”

June 22, poll indicated that the leave vote held a narrow one-point lead. Analysts believe that waves from the Brexit vote are buffeting the UK stock market, tossing it up and down as the opinion polls shift this way and that.

Asian shares were mixed amid the Brexit fears, the Japanese Yen appreciation and a smattering of economic data releases across the region.

Week-on-week, the MSCI World Index closed at 1,691.76, up by 3.91%. MSCI Europe rallied 7.72%, while MSCI Asia Pacific ex-Japan rose 3.85%. US equities were mostly flat.

Global Bonds

Week-on-week, US Treasury yields rose by an average of 11.70 basis points, led by the 5-year bond which gained by 16.69 basis points to 1.258% and the 10-year benchmark yield which added 16.70 basis points to 1.746%.

Currencies

Week-on-Week the EUR/USD pair traded with a marked upward bias, rising 1.86 US Cents, or +1.66%, to close trading at the 1.1398 level.