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June 2016

Britain votes 'LEAVE'

Published: Friday 24 June 2016

  • Britain votes 'LEAVE'
  • Sterling dives in knee-jerk reaction
  • Never trust a Pollster ever again...ever

So the last few votes are being counted and Britain has decided to exit the EU. The repercussions with regard to Scotland's almost unanimous 'Remain' vote and Northern Ireland's more tentative 'Remain' result are yet to be fully explored but the markets, which had been pretty convinced of a 'Remain' result got it very wrong and immediately dumped Sterling.
So we start our first day of independence negotiations with Sterling dipping to its lowest levels since 1985 – albeit briefly. In fact, the Pound has levelled off at long term support levels as traders take stock of their situations and lick the wounds inflicted by believing Pollsters. We should have learned our lessons by now; they got it so wrong in the Scottish referendum, the last election and now the Brexit vote. Trust no pollsters.
It is obviously far too early to say what the Bank of England and the government will do to try to calm the markets and calm tax payers. After all the fear and panic sentiment expressed in the Remain campaign, they have now to tell us it won't be as bad as all that but they'll do it through gritted teeth I suspect. David Cameron has also announced he will step down as PM at the party conference in October and there is a lot of debate over who should lead the exit negotiations. A cabinet reshuffle is almost inevitable and that may well be true for the shadow cabinet as well.
As for the markets, what has been overlooked by many is the fact that the Euro has also fallen. Losing their second largest contributor will damage the European Union. The impact of that is also yet to be seen but an amicable divorce agreement with the UK might minimise the longer term effects.
There is a little data and news out today that isn't directly related to the referendum but it won't register on the markets because everyone in every economy is too busy assessing the impact of the momentous decision the UK public has delivered.
A word of caution; please be aware that the foreign exchange rates will be hugely volatile for maybe a few days. That means anything quoted may only be available for seconds before a re-quote may be necessary.
And just a final note that, as I write, the UK is still a part of the EU. The process to leave starts from today and the Government will need to exercise the Article 50 right to leave. That starts a two year (and probably much longer) period of negotiations and tidying up which will see a lot of questions answered and a lot of new questions asked. We are in for an extended period of uncertainty but at least we now have a decision against which we (Britain) can plan. So we can't say it yet but in a year or so, Britain will have left the building.


The chief of staff of the US Air Force decided that he would personally intervene in the recruiting crisis affecting all of our armed services. He was in charge of a new Air Force base asked all eligible young men and women to come for recruitment screening. The base was in a fairly poor mid-western area so the queue began to form at dawn.
As he and his staff were standing near a brand new F-15 Fighter, a pair of twin brothers who looked like they had just stepped off a tractor walked up to them. The chief of staff walked up to them, stuck out his hand and introduced himself. He looked at the first young man and asked, “Son, what skills can you bring to the Air Force?”
The young man looks at him and says, “I’m a pilot!”
The general gets all excited, turns to his aide and says, “Get him in today, all the paper work done, everything, make it happen!”
The aide hustles the young man off.
The general looks at the second young man and asked, “What skills to you bring to the Air Force?”
The young man says, “I chop wood!”
“Son,” the general replies, “we don’t need wood choppers in the Air Force, what else can you do?”
“I just chop wood. That's all”
“Young man,” huffs the general, “you are not listening to me. We don’t need wood choppers. This is the 20th century and this is the United States Air Force.”
“Well,” says the young man, “you dun hired my brother!”
“Of course we did,” says the general, “he’s a pilot!”
The young man rolls his eyes and says, “So you need me. We're a team. I chop it and he piles it!”


Today's Major Economic Releases 

Market BST Data/Event Previous Expected
EUR 09:00 German IFO business climate 107.7 108.7
GBP 09:30 BBA Mortgage approvals 40.1K 37.9K
USD 13:30 US: Core durable goods order m/m 0.5% 0.1%
USD 13:30 US: Durable goods order m/m -0.8% -0.5%
USD 15:00 US: Revised UoM consumer sentiment 94.3 94.2

FX Research by David Johnson

Daily Currency Analysis with William Busby

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