Market calm - what does this fortell?

One thing that has surprised me is the reaction of the markets to Brexit. Given that over 50% of market activity is driven by short-term trading algorithms, all programmed to try use data about everything including political risk, it is a surprise I would think to many that  really they are so calm.


Of course, last year was a bad year for the FTSE 100 and FTSE250, a bad losing year in terms of value, but it was across the West. The NYSE is also down 9% over the last 6 months, the FTSE at 12% is within a margin of error. Even the Shanghai composite is down around 5%.


At best you could say there is a little topper on the downside from Brexit but the trend is the trend. Without Brexit the FTSE would undoubtedly still be significantly down. As usual, there are a number of factors at play, here are my top 3:


a) "Buy the Rumour, Sell the News" - the reality of the hit to the FTSE from no deal will perhaps only happen the day that no deal is agreed, just as the bounce for a withdrawal or revocation of Article 50 must await the act, not the discussion.


b) Given the FTSE is full of dollar based multi-nationals, the real drivers are global macro such as the China-USA trade war, general slow down in the world economy, the rise of digitisation in every aspect of company life, uneven growing global population and resource extraction. Brexit is a long-way down this list.


c) No one knows what  the effect is of even a Hard Brexit. Clearly some industries with just in time manufacturing have issues, but many do not - take lawyers for example, Brexit means more productivity not less, how it works out in the round is hard to fathom in the era of project Rapture and Fake news - even for the algo's.


It will be interesting to keep an eye on the markets though for signs of economic stress over the next two months.