UK European Union Referendum

BMO Market Update – The views and opinions expressed herein are those of the Portfolio Manager, and Mr. Serge G Pepin, and do not necessarily reflect those of BMO Investments Inc

The upcoming UK referendum on staying in or leaving the European Union after 43 years of membership has the full attention of the financial markets this week. Ten-year gild and bund yields have fallen dramatically over the past two weeks (the German bund dipped into negative territory before backing up slightly Friday) as investors have been seeking safe havens since polls have been indicating a ‘too-close-to-call’ outcome. Central banks worldwide are also keeping a close eye on things, with the US Federal Reserve refraining from lifting its key lend-ing rate at last week’s monetary policy meeting, citing Brexit as a risk to global economic growth.

In the event of a ‘leave’ vote, central banks are at the ready to unleash the necessary financial measures installed after the 2008 crisis, all in an effort to provide and maintain liquidity and the stability of the global financial system. Stock markets, and in particular those of the UK and Developed Europe in general, have felt the brunt of investor selling over the past two weeks. Although stock prices have just started to recover from a two-week slump, they had tumbled to near their February 11 lows. Financial markets are certainly highlighting how sensitive they have become to the unknown risks presented by a potential UK departure from the European Union.

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