How could the analysts, forecasters and odds makers get it so wrong?
Just prior to the UK referendum, traders acted as if the outcome was an easy read, with a guaranteed outcome: that the referendum for Britain to exit the EU (Brexit) would fail, and the UK would remain in the EU.
Based upon this assumption, traders converted this newfound bullish sentiment into an impressive rally in the European equities markets. This sentiment carried over into the US equities, culminating with the Dow closing over 18000. This risk-on demeanor also put pressure on safe haven assets like gold and the US dollar.
That warm and fuzzy feeling would be short lived. As the votes began to be counted, and an unexpected outcome began to emerge.
Contrary to market sentiment, British citizens voted 51.89% to 48.11% to leave the European Union. It very quickly became obvious that the majority of traders got it wrong – really wrong.
What followed was a predictable sharp selloff in European equities and currencies, a sharp selloff in US equities futures and a move to safe heaven assets such as gold and US dollars.
Gold prices, which had dropped to 1249 intraday on Thursday, began one of the most impressive rallies this trader has ever witnessed, moving about $100 dollars to 1362 in less than three hours.
The carnage to equities was brutal. The DAX, for example, traded 10% lower at the lows of achieved on Thursday trading session.
In pre-opening trading the DJIA was down over 600 points at its low last night before circuit breakers halted trading for a short time.
As of the markets close today, gold closed at $1320 up about $58.00, and the DJIA lost 3.39 % of value to close at 17,399.
With the outcome of the referendum for the UK to exit the EU now a certainty, there are more questions than answers, more uncertainty than certainty. What lingers is the question of what effect this move will have on global financial markets, as well as other EU Countries that are also disenchanted with the EU.
One thing is for certain, this move by the UK to leave the EU is only beginning, and it will take years to complete. How this action will change the world as we know it is unknown, which is indeed one of the only things we can be certain about.
Clearly this could be an indication that we are witnessing the beginning of the end of the European Union.
If so, will the last Brit to leave the EU please turn off the lights.
Wishing you as always, good trading,