Overstating Brexit Risk

Overstating the risks

While some recent macro data from the UK has indicated a negative impact from Brexit, Purchasing Managers’ Indices (PMI) are sentiment indicators whose readings are determined using surveys. Of course there’s uncertainty following the Brexit vote, and businesses are right to be less optimistic as a result. This lack of optimism is the same thing that led to expectations being so low – and so easily beaten – in the US in its latest round of earnings updates, and contrasts sharply with how the markets have actually performed since 23 June. In the US, equity indices have made numerous forays to fresh record highs while the UK 100 has itself been in full recovery mode.

How to trade around results

Many investors, knowing full well the lengths to which a company will go to ensure its earnings report is taken positively by the markets, will buy ahead of results day looking to capitalise on the attractive share price move that potentially awaits. Others will wait until the information is made public, looking to react accordingly on the day should results impress or disappoint. In the latter case, a CFD can be used to go short (that is, sell) the shares in the expectation the price will fall. Remember (especially when buying or selling on the day) that the devil resides in the details! That’s what we’re here to help you with.

Will earnings season engineer a rebound by Brexit Laggards?

brexit laggards Source: Alpha Terminal, 22 Jul

The above table details about 1/5 of the UK 100 . These stocks and more are still trading up to 32% lower since the close on 23 June. Conspicuous in their presence are the banks/financials, travel stocks and house builders. Will the UK’s banks beat expectations just like their US counterparts have? Will markets see sense and realise that the UK still needs 300,000 new homes built every year?

Food for thought: Where sharp sell-offs turn out to be overdone, all it might take is a rose-tinted outlook or earnings beat that says ‘things aren’t as bad as we thought they would be’ in order to kick off some impressive recoveries. You can contact our trading floor to get the full list and myriad other metrics.

Now we’ll take a closer look at our top four Results Season picks: Taylor Wimpey, BP, Lloyds Banking Group and ITV.

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This research is produced by Accendo Markets Limited. Research produced and disseminated by Accendo Markets is classified as non-independent research, and is therefore a marketing communication. This investment research has not been prepared in accordance with legal requirements designed to promote its independence and it is not subject to the prohibition on dealing ahead of the dissemination of investment research. This research does not constitute a personal recommendation or offer to enter into a transaction or an investment, and is produced and distributed for information purposes only.

Accendo Markets considers opinions and information contained within the research to be valid when published, and gives no warranty as to the investments referred to in this material. The income from the investments referred to may go down as well as up, and investors may realise losses on investments. The past performance of a particular investment is not necessarily a guide to its future performance. Prepared by Michael van Dulken, Head of Research

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