We wake up this morning to the news that the Brexit side has won. Quite a shock to the markets which in the last few days have been increasingly discounting the risk of such an event, most notably seen in the appreciation of the Pound and higher equitiy indices. This morning Asian stock markets ared won 8% (Japan) and the Pound has tumbled significantly vs all currencies overnight. GBPUSD down initially 10% now stabilising at the time of writing at -7%.
Whats next?
- Well Cameron will likely signal he will resign, but likely only after leads the government to transition to a post-EU world which may take 2 years.
- Markets will be highly volatile over coming 2-3 trading sessions as the implications and consequences are digested.
- Will central banks and notably the BoE be forced into action to stabilise the markets? If the GBP continues to fall they may even have to raise rates prematurely to defend the currency. If trade and the economy weakens substantially, they may have to go the other way and move towards negative rates. Most likely though is the implementation of fiscal measures such as liquidity support lines to banks and perhaps additional USD/GBP swap lines to the Fed to support the financial system and ensure ample liquidity.
- European equity markets will fall next week, perhaps up to 10% as uncertainty dawns on the political future of Europe and its economic consequences which are clearly negative in the short term (which is exactly what markets focus on)
- Politically there will be a wave of discussions around European nations and strengthened resolve among the anti-establishment and right wing parties to push for referendums to leave Europe. Scandinavia and Holland are likely to try and follow UK's lead. France and Le Pen will get further support for their agenda. In the US, Trump and his supporters will feel a sense of justification for their cause and brand of isolationist-protectionist politics.
Interesting times indeed! Volatility is here and it is good for trading :)
Whats next?
- Well Cameron will likely signal he will resign, but likely only after leads the government to transition to a post-EU world which may take 2 years.
- Markets will be highly volatile over coming 2-3 trading sessions as the implications and consequences are digested.
- Will central banks and notably the BoE be forced into action to stabilise the markets? If the GBP continues to fall they may even have to raise rates prematurely to defend the currency. If trade and the economy weakens substantially, they may have to go the other way and move towards negative rates. Most likely though is the implementation of fiscal measures such as liquidity support lines to banks and perhaps additional USD/GBP swap lines to the Fed to support the financial system and ensure ample liquidity.
- European equity markets will fall next week, perhaps up to 10% as uncertainty dawns on the political future of Europe and its economic consequences which are clearly negative in the short term (which is exactly what markets focus on)
- Politically there will be a wave of discussions around European nations and strengthened resolve among the anti-establishment and right wing parties to push for referendums to leave Europe. Scandinavia and Holland are likely to try and follow UK's lead. France and Le Pen will get further support for their agenda. In the US, Trump and his supporters will feel a sense of justification for their cause and brand of isolationist-protectionist politics.
Interesting times indeed! Volatility is here and it is good for trading :)