Brexit – markets are seeing an expected flight to safety

How are markets reacting to Britain’s decision to leave the European Union? The answer seems to be broadly in line with what analysts had predicted, but with volatility expected to remain high, there is no certainty about the direction of prices.

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Banks & Property Down

 

In the UK, the expected assault on banks and property firms has been in evidence. Among banks, circuit breakers have kicked in at least twice to temporarily suspend trading. Barclays, RBS and others have seen their share prices tank.

Property firms have slumped, with Foxtons down 22% at one stage on Monday, June 27th. Another big faller was Barratt Developments, which slid from around the 570p handle before the vote to trade at 384p on Monday. Trading in Taylor Wimpey and Berkeley Group was temporarily suspended on Monday morning because of high volatility.

Defensive stocks rally

 

But it’s not all been doom and gloom. Some defensive stocks have rallied. GlaxoSmithKline has risen, as has Diageo and United Utilities Group. Gold and silver miners like Randgold and Fresnillo are also enjoying a bounce.

Sterling pummelled

 

The biggest story has been the drop in the pound, which has sunk to its lowest level in 31 years versus the US dollar. GBPUSD hit fresh lows on Monday despite efforts by chancellor George Osborne to restore calm. Virtually every currency has risen against the pound since Friday.

Gold rally

 

Investors are seeking shelter and the big gainer has been gold, which has jumped around 5% since the Brexit vote. Expectations that the Leave win will enable the US Federal Reserve to delay raising rates this year is also likely to be positive for gold.

Yen surge

 

USDJPY sank below 102 as the Leave win sent Japanese equities plunging. The yen is a safe haven currency and tends to move inversely to Japanese stocks. The Nikkei 225 sank 8% on Friday, although recovered a little in Monday’ session.

DAX down

 

European indices have taken a beating since the vote. The DAX opened 1,000 lower on Friday but managed to stabilise.

Gilts and Bonds

 

Safe haven demand is spurring this year’s bond rally to fresh highs. UK 10-year gilts have soared, with the yield on British paper down below 1% for the first time ever. Japanese government bonds are yielding -0.2%, while German bunds are near record lows.