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5 things to note about Brexit jitters


The Brexit vote is upon us in the week ahead and is contributing to market jitters.

 

Core European bond yields have been negative for some time, as the European Central Bank has been aggressively buying bonds as part of its quantitative easing policy. While most of the German yield curve has been negative, German 10-year bond yields turned negative for the first time earlier this week, reflecting uncertainty over the implications of the Brexit vote. The move was brief and 10-year fund yields are now back around zero.

The ‘leave’ campaign for Britain to exit the European Union (EU) – focusing on the emotive topic of immigration – has clearly been doing a good job with polls showing a slight lead over ‘remain’ campaign.

Key points regarding the referendum and its implications are as follows:

Will Britain Leave or Remain?

The polls have a slight edge in favour of Britain leaving the EU, but I still lean to a remain outcome. That’s because undecided voters (assuming they actually vote) are likely favour the status quo and telephone polls – which were more accurate during the UK election last year – still favour a remain outcome. But it’s a low conviction call.

It’s important to note that underlying global economic conditions haven't changed, and that having largely ignored Brexit risks until last week, markets are most likely overreacting. Expect market jitters to persist ahead of the vote.

About the author
Shane Oliver, Head of Investment Strategy and Economics and Chief Economist at AMP Capital is responsible for AMP Capital's diversified investment funds. He also provides economic forecasts and analysis of key variables and issues affecting, or likely to affect, all asset markets.
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