Brexit betting drives world markets

In what is likely to be a familiar theme for the next few days, market sentiment is being driven by the betting on the Brexit vote.

The odds of a leave vote deteriorated last night, driving a risk on move in world markets that should support the ASX 200 this morning.

Market thinking on the Brexit vote is likely to dominate sentiment over coming days. Where the market is positioned leading into the Brexit vote will be important to trading risk. As last night’s moves demonstrate, the further markets move in the direction of a flight to safety leading up to the vote, the greater the potential for two way volatility.  In that case a remain vote could lead to a quick unwinding of risk premium and a substantial “risk on rally”

The sharp reversal of sentiment on the gold market overnight is a clear indicator of the Brexit driven nature of trading at the moment. Gold stocks are likely to be weaker on the local market today.

Energy stocks are likely to be another weak sector in today’s market. The recent drop in oil prices looks to be more than just Brexit driven volatility. The concerted nature of the recent downtrend indicates profit taking as traders take the view that, despite recent improvements in the supply situation, the balance or risk is to the downside at current prices.