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Quarterly Economic Outlook - Q3 2016

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Quarterly Economic Outlook - Q3 2016

On 24 June, immediately following the British referendum vote in favour of exit from the EU, financial markets were hit by an abrupt sell-off. Sterling plunged, equities fell, yield spreads on lower quality debt rose, and gold prices soared.

Whereas the January-February sell-off was quite gradual, extending over six weeks from yearend until early February, this time the impact was sharper and larger. The FTSE 100 fell over 8.5% in the first hour of trading on 24 June, but by close of business on 29 June it had recovered to a level higher than the close on 23 June (all returns are in sterling on a net total return basis).

More significantly the FTSE 250, which better represents domestic UK companies, fell almost 12% in the first hour of trading on 24 June, and by close of business on 29 June it had retraced about 4 percentage points of that decline, to end 8% down compared with 23 June.

Sovereign bond yields in most major markets declined, reflecting a widespread flight to quality, while currencies perceived as safe-havens, such as the US dollar and Japanese yen, strengthened. Corporate bond yields did not fare so well; in particular yields and spreads on bonds of lower quality rose across the UK and Europe.

Gold prices jumped from US$1,255 per ounce on 23 June to US$1,358 on 24 June, slipping to US$1,324 by 29 June.

Source : Invesco Real Estate

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