The historic decision taken by the UK to leave the European Union has triggered a sharp response in the markets.
The pound dropped to its lowest level in over three decades. The impact of the UK’s exit is being felt throughout the global markets.
The below mentioned five charts would provide an indication of the movement of the markets.
A measure of where bank borrowing costs would be in the coming months, known as the FRA/OIS spread, reached the maximum level since 2012.
The Bank of Japan has initiated measures to deliver enough liquidity, including the use of cross-currency swap arrangements. This is to ensure stability in the market.
The Chicago Board Options Exchange’s Volatility Index, which is also known as the VIX measures volatility in the markets. The VIX index and its derivatives are expected to increase following the vote for Brexit.
Foreign Exchange Market
The consequence of Brexit is affecting the foreign exchange markets. Several safe haven currencies are gaining.
The Japanese yen has been the best performer among the major currencies, while the euro has come under severe pressure.
Analysts believe that the franc and the pound are also an excellent measure of the risk of a Brexit.
The Renminbi is the official currency of China. It has declined to its lowest level in comparison to the US dollar since 2011.
The devaluation of the Renminbi had resulted in a market crash in August 2015. Hence, the markets fear that the weakening of the Renminbi could result in another market turmoil.
An assessment of the volatility of this pair (for a month) indicated by options prices has also increased after the referendum outcomes.
The Futures and Eurodollars
The real S&P 500 futures contract is dropping after the Brexit vote. The market prospects regarding the direction of the Federal Reserve’s policy rate are measured on the basis of the December 2016 Eurodollar futures contract.
The December 2016 Eurodollar futures contract is progressing, indicating that traders forecast less tightening from the Fed in the US by the end of the year.
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