How Will Brexit Affect Markets?

I was writing my daily commodity market updates early Thursday morning and just as I was ready to hit send, stock indexes and interest rates rose abruptly. The euro and pound rallied while the dollar dipped. Gold fell as well. These immediate reactions were reversed later in the day when it appeared not everyone in the Brexit deal with the European Union was on board.

Even though the market reversed there is a valuable lesson here. When and if Brexit becomes a reality, we know that it will likely be bullish for equities and bearish for interest rate and precious metal ETFs as well as the dollar index.

For months we have endured sudden sharp moves in many markets when China trade talks have supposedly improved or been postponed. When we are told the negotiations are going well, stocks do fine while the usual safe havens (ETFs TLT, GLD and Japanese yen) falter. After reality sets in and the truth comes out that nothing new has been agreed upon, the markets often do an about face. Again, the lesson here is that news, true or not, moves markets and teaches us how the markets will likely react when the fundamentals become clear.

When you see sudden spikes in price either up or down, check the headlines. By doing so you will prepare yourself to make the right trade in each sector quickly when a major fundamental event occurs. Rapid responses save time and money.

John Seguin
Senior Futures Instructor
Market Taker Mentoring, Inc.