Traders Say “Remain” Will Win The Day

The British are at their polling stations, and the Brexit vote is on.

Market reaction tonight and Friday morning to the results of the UK’s vote on whether to remain in the European Union are likely to be asymmetrical. A remain vote is somewhat priced into the markets. We should still see an immediate jump in stock prices and a fall in bond prices, but stock traders might want to sell into the rally and bond traders buy on the decline in bond prices.

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The net result is not likely to be significant by the end of the day. Moreover, a remain vote changes nothing on an economic fundamental basis. It merely clears away a potential stumbling block.

A leave vote is definitely not priced into the markets. That would cause a quick plunge in stock prices and a surge in bond prices. The markets should be volatile most of the day. But the story won’t end there. From that point on, we’ll be dealing with markets that will go through an extended period of fear-based trading.

The process of Britain’s exit would not actually be complete for two years, possibly three. Nothing will change immediately other than the markets fearing the worst economic results for Britain and Europe.

Read more about the referendum and see a schedule for expected polling results for Brexit-watch-party planning.

Dwight Johnston is the chief economist of the California and Nevada Credit Union Leagues and president of Dwight Johnston Economics. He is the author of a popular commentary site and is a frequent speaker at credit union board planning sessions and industry conferences.

June 23, 2016

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