The Brexit vote may have caught global markets off guard. But with U.S. stocks surging again in Wednesday’s session, Brexit may have already become old news. According to Citi analyst William Lee, there doesn’t appear to be much follow-through in the initial Brexit sell-off.
“Whereas spot prices have stabilized, there appears to be little conviction among traders and other financial market participants about the course of exchange rates and asset prices going forward,” Lee explains.
While the sell-off in U.S. stocks has been severe, he notes it has been orderly and not particularly chaotic for such a surprising and potentially impactful turn of events.
Lee describes market sentiment as “tentative” and warns that the type of uncertainty that the Brexit vote has created can be a “significant drag” on economic growth. The U.K. leaving the EU is unprecedented, and until there’s a better idea of how it will actually happen, investors and businesses will be very cautious. That caution is typically a recipe for economic slowdown.
Prior to the Brexit vote, the futures market was pricing in a 50 percent chance of a U.S. interest rate hike by the end of the year. This week, that chance fell…
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