The past couple of weeks have been a whirlwind of events and headlines for markets to digest. Performance has been mixed and headline to headline trading has returned to the fore as investors’ nerves have become challenged by the uncertainty of change
What is Major and what is noise?
The Major factors to consider are the prospects for Brexit and the Fed’s decision to sometime raise US Interest rates.
“Brexit” is the term given to the Britain’s possible withdrawal from the European Union. Riding on the wave of populism, giving the voters the choice Prime Minister, David Cameron locked in a date for the vote – next week!
The dangers are significant – populism and perception will make the case to leave very strong, in many voters minds. Equally the economic consequences of this are significant, albeit unknown as this is a first.
Growing up and starting my career in the UK, my perceptions may be a little jaded, but on the surface, what was the EEC (Now EU) has changed immeasurably and Britain has only ever been “half in”. The Decision not to be part of the Euro currency for example, reflects Britain’s desire to retain some independence against a backdrop of ever encroaching legislation for the Country, coming from Brussels rather than Westminster.
Were the Brits to vote for exit, the fluctuations in the Forex markets would be substantial, but beyond the knee jerk reaction that markets will surely have, other far more deep seated consequences of being out remain.
For one, being outside of Europe will almost certainly have an impact on companies located in the UK, and enjoying access to the common market. Banking and Finance being the huge one, where London remains the Global Financial hub. Will this change as Britain becomes an outsider? Other examples would include Nissan and its giant factory in Sunderland, that exports vast numbers of vehicles into Europe.
Suffice to say there would be dramatic fall out and no doubt trading embargos and so forth. That said, based on the latest figures, the UK’s import/export trade deficit with the EU was almost £24bn for the first three months of the year. This staggering gap would also lend support to the argument of leaving, given any tit-for-tat trade embargo would likely work far more in Britain’s favour.
That said, the real pain of Brexit, is as yet unknown.
And if Britain votes to stay in – things will likely deteriorate further for Britain. Europe was at War just half a century ago. Memories linger, in spite of political effort and I would suspect that Britain, remaining in the EU, would be punished for having the audacity to even consider leaving.
For what it’s worth, I think exit now is not such a bad thing.
The perilous state of the EU finances with Greece, Portugal and Spain “red lining” with debt will likely end with one or some having to go anyway and best not being last man standing in that race.
Finance wise, the figures vary, depending on the site you refer to but for argument’s sake for the $19.1bn in 2014 contributions, the UK received $9.2bn back – not what appears to be a very good deal! The surplus of course, goes into propping up or developing the peripheral and largely former Eastern European countries, who are benefiting from huge contributions.
Then there is the colossal wasted and un-necessary spending the EU is renown for – some of which beggars belief.
Any one of these metrics make the case for leaving blindingly obvious. However, there are risks and downside – albeit those risks are likely to be less now than if this were revisited in ten tears time!
US interest Rates
Oh, well these were left on hold until Brexit is sorted out! Well that and concerns over the US labour market, but this should give you an idea of the weight that Brexit is having on global financial markets.
June the 23rd is the day of reckoning and one of truly historic significance – watch this space and make sure you have some protection on your investments as it could be a bumpy ride!