The unexpected vote to leave the EU by the U.K. or so-called “Brexit†on June 23rd blindsided the global currency and equity markets. Europe suffered losses of approximately eight percent during that Friday as results became known across their bourses, the worst one-day of trading since the dark days of 2008.
The Pound dropped dramatically and now trades at its lowest levels since 1985 when Wham! and Like a Virgin were topping the pop charts. The 10-year Gilt has dipped below the one percent yield level; that is the first time this sovereign bond has breached that demarcation point.
Even though our markets have staged an impressive rally to fully recover their initial losses on Brexit, investors should not get complacent. What happens in Europe in the next few weeks and months will be critical for the direction of our markets for the rest of 2016.
It is doubtful there is any going back from this decision despite the griping and misgivings in the global press corps. Despite petitions for a revote and even one calling for London to secede from England and join the EU, democracy has spoken and the U.K. is heading out of the EU at some point in the near future.
This is going to be an arduous process and will not begin in earnest until the country invokes Article 50 which then triggers up to two years of intense negotiations on the details of what is likely to be a contentious divorce. High-level officials in France, Germany, and the EU voiced their desire to begin these talks as soon as possible over the weekend.
However, England still holds the cards as to when these discussions will commence. This will not happen until the Conservatives also known as the Tories pick a new leader to replace the departing David Cameron who bet his political future on a “remain†vote and lost. The Labour Party is also likely to get a new leader after its head ran a hapless campaign on behalf of the “Stay†faction.
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