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Is the Brexit fallout over for markets?

Category: Others,  News Source: Business Standard,  Updated-On: Jul 5 2016

Raising eyebrows: Besides US and India, UK'S FTSE also trading above pre-brexit levels.

 

In what seems to be a resistant behavior by the Indian and American markets, trading above pre-Brexit levels and closer to pre-Brexit levels respectively, it looks like the two markets have taken Brexit in their stride. Except for the fact that, European markets are trading lower than pre-Brexit levels. What comes as a surprise is that UK's index FTSE is trading above the pre-exit standings.

Two obvious questions arise from these patterns. One, why is the UK market trading at pre-brexit high levels while others are still below it, and two, as far as the Indian and American markets are concerned, was brexit worth all that hype?

 

A few reasons as to why UK's FTSE is trading at such levels despite analysts and economists depicting that the country will be worst affected as it exits the European Union.

- The exit is still two years away, even though German Chancellor Angela Merkel and other European nations want a quick exit. In-fact, British politicians are now stalling the exit process by trying to delay the inevitable as much as possible.

- Secondly, Bank of England's governor Mark Carney had hinted last week that UK rate cuts are likely in order to cushion the Brexit vote impact. The interest rates in UK are already at historic lows at 0.5 per cent.

 

Furthermore, Chancellor George Osborne is said to be planning to cut the nation's corporation tax to less than 15 per cent to offset the shock for investors.It was believed that many companies would move out of UK if Brexit would become a reality. UK is now trying to woe these companies back by contemplating tax cuts thereby softening the impact.

 

Emerging economies like Brazil and India are having their structural and political issues, but their relative attractiveness is considerable despite the negative yielding environment.With India shrugging off Brexit concerns, the Sensex registered its biggest weekly gain since May and rallied over 145 points to an 8-month high on Friday buoyed by data that showed manufacturing activity gathered steam last month amid strong foreign capital inflows.

 

The Sensex rallied for the fifth day in a row and settled higher by 145.19 points, or 0.54 per cent, at 27,144.91, its highest closing since October 27, 2015, thus wiping out the 604-point loss on June 24, the day Britain voted to leave the European Union. The index had gained 602.01 points in the previous four sessions, signaling that the market has weathered the Brexit storm. The 50-share NSE Nifty was at 8,328.35, up 40.60 points, or 0.49 per cent — a level last seen on August 20 last year. For the week, NSE Nifty surged 239.75 points, or 2.96 per cent. Source: BSE India

 

Despite the markets defying the popular sentiment, analysts feel that markets can correct distinctly, notably the American market. Bank of America Merrill Lynch feels that just because the S&P 500 Index has recovered it doesn’t mean the USA is stronger. The firm says that it’s just a matter of time until companies start to reveal just how hard Brexit is punishing them and it could soon get quite ugly for stocks.

 

Bank of America Merrill Lynch says that Brexit was not on the radar of most of the company and has come as an unpleasant surprise. In previous quarter’s result commentary only 26 of the 500 S&P 500 companies mentioned Brexit but now all of a sudden there is potential for weaker growth in Europe, even potential for a UK recession. Source: Business Standard

 

Lets hope it doesn't turn out ugly!

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