The RSM Brexit Stress Index finished lower for the week at -0.16 from -0.09 a week earlier, following a recent extension for Britain’s imminent departure from the European Union.
The index, which measures UK economic sentiment surrounding Brexit, has declined in 14 of the past 19 weeks since a peak in December. Financial markets are now signaling a period of normality in terms of asset price movements and volatility.
The index appears to be responding, in part, to the political stalemate ahead of both local and EU elections, with the markets placing bets on the inevitability of the UK’s soft exit from the EU or perhaps a second referendum. The EU gave Britain an Oct. 31 extension for Brexit on April 10.
Performance of index components
The RSM Brexit Stress Index is composed of six components; they include the British pound-euro exchange rate and its volatility, the FTSE 100 and its volatility, the gilt yield spread and the UK corporate bond spread.
The British pound continues to trade sideways, losing a bit since last week but with volatility dropping again for the fourth week in a row.
The FTSE gained 38 points, with volatility dropping for the fourth straight week.
The gilt spread remained at normal levels, suggesting anticipation of a satisfactory resolution in terms of economic growth. And the medium-term down trend in corporate spreads since January appears to have been reestablished over the past four weeks.