Anyone reading a financial page or newspaper is aware of significant activity in UK markets brought about by many influences. This includes not only the impacts of the global economy but especially the state of European Union (EU) countries and consideration on behalf of the UK to break away from the EU – referred to now as Brexit. How is this impacting the British economy, and to what extent?
British citizenship and leaders are on the cusp of what many economists view as a vote that will be critical to the future of the UK’s financial position not only within the EU but also throughout global markets. During its time as part of the EU, Britain has flourished with trade agreements that have boosted economic growth from the slowest in the ‘group of seven’ economic powers (G7) to one of the strongest from the standpoint of growth in GDP. Those weighing in on the ‘leave’ side of the discussion point to economic policy reforms internal to the UK that boosted performance, rather than being part of the EU. Economists on the ‘stay’ side of the decision (who at this point in time represent the majority) feel departing will slow economic growth. Their estimates reveal that the EU has played a significant role in the economic growth of the UK – possibly as much as 10% – through opening up increased access to markets throughout Europe.
Taking all views based on economic history and educated opinions into account, the most widely-held belief is that exiting from the EU would create a negative impact on the UK by closing doors for trade in EU markets while opening few to make up the loss in other countries or markets.
How is the UK Stock Market Reacting?
Brexit is, of course, only one of the factors in day-to-day activity in the UK stock market. With a higher expectation that the UK will remain a part of the EU, UK markets remain on an uptick with the British FTSE 100 rising .4% with the vote looming, and the pan-European STOXX 600 index having realized the same level of gains for several consecutive days of upward trends.
Reuters reported that the UK’s blue chip index closed at 6,204 points early this week for a 3% gain, the best reported for a single day since February. This is believed to be in part due to a positive expectation that the UK will indeed remain in the EU.
Not everything is as rosy, with commodities such as industrial metals trending downward due to an excess in supply from global markets. Copper is an example with a drop of .5%. Energy stocks also declined driven by the global drop in oil prices.
Investors are exercising general caution in purchases pending the final outcome of the Brexit vote. There is also concern that should the UK go through with an exit move, other EU countries could be taking a look at their positions in the EU and consider a similar move, causing a domino effect within the EU as a whole. This could be much more disruptive to the state of the European economy than the UK on its own, possibly triggering global economic volatility.
Currency traders note that the British pound has trended downward in recent months – even over a period of years. Brexit is not expected to impact the pound’s performance significantly, regardless of the outcome of the vote. The pound fell against the US dollar in recent trading sessions due to concerns over the impact of the pending vote, although more recent beliefs that the UK will stay have not reversed that direction. The pound has in fact been the most impacted segment in anticipation of the Brexit vote results.
What Does the UK Stock Market Outlook Mean for Traders?
Even with the concerns and volatility that could be generated by the UK’s decision to remain in the EU, there are opportunities for traders. US stocks actually gained with the news from polls that indicate Britain will remain in the EU. Concerns had previously caused a nosedive in the US Dow industrials while positive expectations reinvigorated trading as the S&P 500 gained ground, spurred by shares in segments such as commodities.
Day traders can take advantage of volatility in UK stock markets regardless of whether the vote to leave the EU is stay or go. Jumping into the right trade at the right time can generate profits simply from the gyrations that can be expected by either decision.
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Disclaimer: SureTrader Blog is not intended for U.S. persons. Stock information is not to be viewed as buy or sell recommendations.