Nice observation from Angus Nicholson at IG:
Both the Conservative and Labour parties in the UK are set to elect new leaders in the coming months and Article 55 – the starting pistol for an EU exit within two years – is still yet to be called. The crux of the issue is what a post-Brexit UK should look like, many are calling for the “Norway Option” where the UK keeps full access to the European single market as a member of the European Economic Area (EEA) but has no say in EU politics. But members of the EEA still have to abide by the EU’s rules on the free movement of people and the Brexit vote was largely won on restricting immigration to the UK. This is really the Catch-22 for the Brexiteers, how does one avoid crashing the UK economy by leaving the EU single market and yet at the same time win some restrictions on immigration that would appease a deeply disgruntled electorate?
And this is where the binary decision for markets occurs, if the Brexiteers look like they are veering towards leaving the single market then global markets will begin to selloff sharply, or, if the Brexiteers look like they are trying to push for some sort of “Norway Plus” deal then they will start to rally. And there’s a good chance markets will move dramatically on indications of either over the next couple of months.
But the rally we have seen in global assets overnight based on the premise that cooler heads will prevail and that the UK is unlikely to wilfully do something against its own self-interest was definitively disproven last Friday and should be cold comfort for investors.
European and US markets rallied sharply overnight on hopes that a post-Brexit Europe may not be that dire. Telcos and financials led the FTSE higher, while it was energy and financials that dominated the US session. Emerging market currencies and indices also bounced strongly overnight alongside most major commodities.
Asian markets all look set to open higher with energy sectors expected to see strong gains across the region after WTI oil gained 3.8% overnight.
Focus in the ASX today will be on the stocks that have been hit hardest in the post-Brexit selloff as they are the ones likely to see the best gains in a relief rally. Here’s the list of the top 20 stocks that saw the worst 5-day returns:
Stock Name 5-Day Return % HENDERSON-CDI -27.2 CYBG PLC -CDI -26.7 BT INVESTMENT -20.8 IRESS LTD -14.1 QBE INSURANCE -14.1 INCITEC PIVOT LT -13.3 BEACH ENERGY LTD -13.0 COMPUTERSHARE LT -12.5 MCMILLAN SHAKESP -12.3 PLATINUM ASSET -11.4 SEVEN WEST MEDIA -11.3 WORLEYPARSONS -11.1 QANTAS AIRWAYS -10.9 MACQUARIE GROUP -10.6 MAGELLAN FIN GRP -10.5 ALS LTD -10.5 ACONEX LTD -10.1 MONADELPHOUS GRP -9.8 MESOBLAST LTD -9.2 SEEK LTD -9.1
