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TRADING THE WEEK: Brexit, Volatility and Fed Keep Market Quiet
Traders Magazine Online News, June 12, 2017
Is it Wednesday yet?
That’s what traders and pundits were asking last week as a trio of factors contributed to keep trading muted. Trading the first full week of June was confined to Thursday and Friday, as the former arrived and saw the ECB leaving interest rates and asset purchase targets unchanged and omitting any forward guidance. Also, in the U.S, the Comey Senate testimony while dramatic, did not offer a smoking gun, and did little to affect markets. U.S. stocks ended Thursday little changed, while Treasuries fell and the dollar advanced as equity indices swung between gain and losses.
According to Larry Peruzzi, Managing Director and Head of International Trading at Mischler Financial reported that trading volumes returned to their ADV on Thursday after spending the first half of the week down about 15% from their ADV. Volatility, as measured by the VIX index, he added, inched higher up going into last Thursday, but by the end of the week was back below 10 to all-time lows.
Trading last week reflected the pre-FOMC/ low-volatility malaise as volume drifted lower to an average 6.45 billion shares per day from the week prior when volume was 6.52 billion shares, according to Bats Global Markets. Just one month ago volume was over 7 billion shares per day.
“The bulk of volatility seems to be confined to the foreign exchange and oil markets,” Peruzzi said. “Oil closed out the week down 4% and the U.S dollar rose 1%. The Pound sterling lost 2% on Friday after the U.K’s ruling conservative party failed to secure a 326 seat ruling majority.”
And speaking of the Pound and ruling majority, market attention turned to the U.K. as there will be a new coalition government formed with the Democratic Unionist Party (DUP) and Conservatives being forced to work together as the British people voted to reject Prime Minister May’s hard conservative agenda and voted. The net result, according to Nigel Green, founder and CEO of deVere Group, is that Brexit will now take much longer than expected and be less of a factor on the global or European economy.
“The UK election result is a hammer blow for a hard Brexit. May no longer has the ability to deliver on this as she did even 24 hours ago, for two key reasons,” Green began. “First, the British people have spoken and largely rejected much of the Conservative manifesto which championed a hard Brexit. And second, the leader of the Democratic Unionist Party, which is joining forces with the Conservatives to form a coalition government, have said they will not back a hard Brexit.”
A “hard Brexit,” he explained, means to withdraw from the EU swiftly and with little thought to the remaining members of the UE. Talks on Brexit were due to begin June 19.
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