Yahoo Finance These 3 events are threatening to shake up the market
Three events are keeping the markets on pins and needles.
OPEC is set to debate its production levels on June 3, while the Federal Reserve will determine its next move on interest rates on June 15. But it’s Britain’s referendum on EU membership, scheduled for June 23, that could be the most important of all.
A “Brexit” could have enormous consequences, warns Ben Emons, portfolio manager at Leader Capital. “Markets will respond with a significant amount of volatility,” he said.
Yet there doesn’t seem to be all that much worry just yet in the U.S. The CBOE Volatility Index (^VIX) – the so-called “Fear Index” – is trading in the mid-teens. The VIX, which measures the market’s estimates of volatility in the S&P 500 (^GSPC) over the coming month, is well below the mid-20s level seen earlier in the year.
“There's probably some complacency, and it comes from central banks such as the European Central Bank, that is now going to purchase corporate bonds,” said Emons. “It also comes from a [U.S.] macroeconomic environment where data, although soggy, is not really showing any significant deterioration either. So markets are in a bit of a low here ... Those three events that are coming are likely going to change the dynamics.”
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In Britain itself, the FTSE 100 (^FTSE) index is off by just 2% year-to-date, although the Euro Stoxx 600 (^STOXX) is off by close to 8%.
Although the U.K. referendum won’t happen until after the Fed’s June meeting, Emons expects America’s central bankers to keep a close watch on poll results across the pond as surely as they are paying attention to uncertainty over the U.S. election.
“Markets continue to be in limbo on whether the Fed actually will move this year or not,” he said. “This U.K. referendum will play into their decision whether they would maybe raise rates in June or not. We think they will not.”
Emons anticipates, at most, one more rate hike by year’s end, but even that could depend on the health of the U.S. economy. He sees movements in the currency markets as also signaling a warning.
“The dollar has turned this year,” said Emons. “That is a reflection of the U.S. economy being slower, the Federal Reserve that has taken a more cautious stance in response to market volatility, [and] at the same time, there's also concerns about other central banks where there policies are not working any longer.”
Emons cites the rise of the Japanese yen (JPY=X) versus the U.S. dollar despite Japan’s monetary stimulus program as an example of one central bank policy that isn’t going as planned, in part because worries over the U.S. overpowering the effects of more yens in the currency market.
“The dollar will continue to trade in sort of a broad range– perhaps with some of the weaker bias – because the U.S. economy is slowing down,” Emons said.
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