'Brexit' vote tops Yellen as week's main event
Wall Street’s highest-priority event this week is Thursday’s should-I-stay or should-I-go “Brexit” vote.
Also on Wall Street's what-to-watch list is Janet Yellen. The Federal Reserve chair gets another shot — this time in her semiannual testimony to Congress Tuesday and Wednesday— to explain the U.S. central bank’s revised, updated and less sanguine view on the pace of U.S. economic growth and interest-rate hikes.
To say the upcoming week is a big one for anyone with money invested somewhere in the world would be an understatement.
With all due respect to Yellen, the main event for investors is the Brexit vote.
Investors will be closely awaiting the June 23 verdict of Britain’s referendum that will determine if the Brits stay in the 28-nation -- but single market -- European Union or go it alone. Markets are having a lot of trouble handicapping the outcome, as polls have been shifting back and forth, suggesting the vote can go either way.
Last week, the so-called "Leave" camp seemed to have an edge on the "Stay" or "Remain" camp, which caused so-called risk assets like stocks to suffer a bout of selling and havens like government bonds and gold to soar.
But fresh polls over the weekend in the U.K. suggest that the "Remain" vote has regained some momentum, narrowing last week's gap and even edging ahead in some of the polls. The shift in sentiment and lowered odds of a so-called Brexit has unleased a massive rally in risk assets Monday around the globe, with stocks surging in Japan (up more than 2%) and equities in Europe (up more than 3%).
In pre-market trading on Wall Street, the Dow Jones industrial average was up more than 200 points.
Many of the trades that worked last week -- such as sell stocks, buy bonds and sell the British pound -- have reversed Monday, as traders reposition their portfolios for a possible British vote to stay in the EU, which is viewed as a more favorable outcome for financial assets.
Still, because the referendum is a binary, stay or go outcome, and since the vote is still close to 50-50, it’s impossible for traders to hedge out all risk.
Aside from losing money if one is positioned on the wrong side of the eventual vote outcome, investment pros expect market volatility, investor uncertainty and other knock-off effects if the vote is for Brexit.
Before the Brexit vote Thursday, Yellen gets another shot mid-week at explaining why the Fed, which a few weeks ago was pushing for rate increases in either June or July, is all of a sudden very hesitant to hike rates in the face of stagnant economic growth and dormant inflation.
Buckle up. The days ahead could take investors on an emotional, financial roller-coaster ride.