By James Stanley, Currency Analyst
The past two trading days have brought a stark about-face to global equity markets. While much of the free world went into the recent Brexit referendum with the expectation for a ‘remain’ vote winning out, shock and dismay enveloped capital markets in the days after as a vote to leave raised numerous questions about the path of the global economy.
But this pain hasn’t been relegated to the United Kingdom, or even Europe for that matter. We’ve seen signs of risk aversion picking up around-the-world in the wake of the Brexit referendum, and this is highlighting the impact of yet another risk factor that the global economy has to contend with as the world attempts to balance a threatening flurry of risks.
In this article, we’re going to look at three markets that may shine if risk aversion continues to show on the back of the recent Brexit referendum.
This is a rather obvious option given recent price action. Gold has caught a major bid through much of 2016 as the Federal Reserve has continued to display a dovish tone whilst backing down from the four full rate hikes that the bank was looking at coming into 2016. As we came into the new year, the concurrent risk factors of a meltdown in commodities (namely, Oil) and a slowdown in Asia were being met with the expectation of the Fed to hike rates a full four times in 2016. This flurry of risks was too much for global markets to bear, and in short order we had threatening moves of risk aversion hitting nearly every market on earth.
The one factor that could give there, the Fed backing down, happened in phases. On February 11th, Chair Yellen told Congress that the Fed wasn’t taking the option of negative rates off-the-table, and this was largely inferred as a dovish take from the head of the Fed. And later in March, the Fed moved that expectation down to two hikes in 2016 from the previous four, and this was yet another dovish shot-in-the-arm to global risk trends. And as this was happening, markets began pricing in the expectation for the Fed to do what they’ve been doing all along: responding to global pressure with dovish support for capital markets.
This provided a major bid for Gold as the Fed continued to back down, all the way into May of this year.