Brit risk: Brexit vote will spur market volatility, strategist warns

Uncertainty around Britain's possible exit from the European Union, also known as the Brexit, could foster a highly volatile market for the next few weeks, according to strategists.

"Markets I think have really been caught off guard by the recent trend towards polling that says Brexit leave is preferable to Brexit remain among likely voters," Nick Colas of Convergex said Monday on CNBC's "Trading Nation."

Recent polls indicate more than 50 percent of British voters now favor the U.K. leaving the 28-nation EU. Many, including British Prime Minister David Cameron, say departing the bloc would have disastrous consequences for not only the British economy but also other European countries. On the other hand, pro-exit voices like The Sun newspaper contend that "outside the EU we can become richer, safer and free at last to forge our own destiny." The referendum on June 23 is likely to be a close vote.

While acknowledging that Google Trends data show searches for "Brexit leave" are 50 percent higher than "Brexit stay," Colas said rather than this being an indicator of voters favoring leaving the EU, it shows that undecided voters are doing their homework. Colas said he believes online bookmakers are right in saying there is a roughly 30 percent chance Britain will vote to leave.

Meanwhile, on betting market PredictIt, a 45 percent chance of a Brexit is implied.

"So it seems like stay is the right choice," said Colas, chief market strategist at Convergex. "But it seems like we're also going to hear a lot of chatter saying the other side before it actually happens," which could translate into a great deal of market uncertainty.

Rich Ross of Evercore ISI said any such volatility will boost the dollar. "We're going to get upside volatility," he said. "The kind of volatility that most of us like to see when you look at the dollar index."

Turning to a chart of the British pound over the last 30 years, Ross, head of technical analysis at Evercore, noted periods of weakness in the currency tend to presage "a very strong run for stocks."

"In this case with the S&P just 1 percent off an all-time high, it has the potential to provide a catalyst for a breakout from a multiyear trading range," Ross said.


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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

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