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Brexit: UK divorces EU
Canary Warf hotels were filled to the brim with speculative traders who booked rooms in order to get into the office early on the morning of Friday 24 June. At 12am GMT votes streamed through the headlines from all 382 local authorities while traders placed their bets.
The Remain camp took an initial lead, but the Leave camp took over and stayed there until the very end. Sky News was the first to call an official Brexit – even though votes were still being counted – as a mathematical probabilities study showed the Leave camp would likely win.
Voters in France, Italy and the Netherlands are now demanding their own votes on EU membership and it does not look good for the EU.
German Chancellor, Angela Merkel, and European Central Bank president, Mario Draghi, were acclaimed for their robust effort to keep the EU together during 2012 and now they are sure to come under plenty of fire.
What now?
This week’s focus will likely be on analysing announcements from EU officials and UK lawmakers. Forward guidance is needed before the financial markets can calm down. Valuing assets in uncertain times is a challenge for investors, who require security in order to make rational decisions. Volatility is expected to climb until clarity is provided. It is expected to take two years to renegotiate laws between the UK and EU.
With increased uncertainty to come from other referendums, the rand is likely to take a beating together with global stocks. The dollar will strengthen as Europeans and Britons protect themselves from the negotiations that will take place over the next two years.
Any bad news surrounding the negotiations will be seen as negative for risk, and consequently the rand should weaken against the dollar and euro. The pound, on the other hand, might weaken against the rand.
Some data to be released may render useless after the referendum, such as Germany’s Consumer Confidence, which is being released today, and tomorrow’s US Consumer Confidence and first quarter GDP. The market might look at the manufacturing reports from China for some clues regarding the strength of the global growth engine.
Other import announcements this week:
Monday
- US Markit PMI
Tuesday
- EU Italian and French Consumer Confidence
- US Corporate Profits
Wednesday
- Great Britain: Bank of England Consumer Credit
- Euro Area: Business Confidence, Service Sentiment, Consumer Confidence and Industrial Sentiment
- Germany: Inflation Rate
- US: Personal Consumption Expenditures (PCE) Price Index, Personal Income, Personal Spending, Pending Home Sales, Crude Oil Inventories and Gasoline Inventories.
Thursday
- Great Britain: Gfk Consumer Confidence and GDP Growth Rate
- SA: M3 Money Supply, Private Sector Credit, PPI and Balance of Trade
- Germany: Retail Sales and Unemployment Rate
- Euro Area: Inflation Rate
Friday
- Euro Area: Unemployment Rate
- SA: Barclays Manufacturing PMI, Consumer Confidence and Total New Vehicle Sales
- US: ISM Manufacturing
Giacomo Bonavera is head of foreign exchange trading at Capilis Asset Managers. Click here to visit the firm’s website.
