The RSM Brexit Stress Index finished the week at -0.01 from -0.16 a week earlier, showing a slight increase in stress as the markets corrected after a holiday lull.
The index, which measures UK economic sentiment surrounding Britain’s expected departure from the European Union, had declined in 14 of the past 20 weeks since a peak in December. Despite this week’s increase, the financial markets are still signaling a period of normality in terms of asset price movements and volatility.
Indeed, with a political stalemate continuing since the EU gave Britain an Oct. 31 Brexit extension earlier this month, the index appears to be waiting for the next shoe to drop. All things considered, that is likely to be the result of the election for UK members of the European Parliament, now just four weeks away.
Meanwhile, Prime Minister Theresa May’s government plans to continue talks with the Labour Party, its main opposition, ahead of the elections, in the hopes of reaching a Brexit compromise.
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 pound continued to trade sideways within a climate of reduced volatility.
The FTSE 100 lost about 1.3 percent since last week’s peak, with a slight increase in volatility.
In the fixed income market, the gilt spread narrowed a bit, but remains within 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 itself over the past five weeks.
