June 24, 2016 is a date that will go down in history. The results of the British referendum have fallen: The United Kingdom is leaving the European Union and this decision won the vote with 51.9% of the votes (17 410 742). The consequences were soon felt
Financial markets are panicking as the British pound falls to a level not seen in more than 30 years. For his part, British Prime Minister David Cameron has announced his intention to resign within the next three months… Update on Brexit and its impacts..
Immediate and negative consequences on financial markets
The consequences of the confirmed Brexit were not long in coming. World stock markets (especially European markets) are simply turned upside down and the falls follow one after the other, hovering around 10%. And it is mainly the banks that are impacted. In London, Royal Bank of Scotland, Barclays and Lloyds Banking Group lost 26.07, 25.46 and 24.05% of their shares respectively.
While the financial markets were sceptical enough about leaving the United Kingdom from the European Union, they are now blaming it on Brexit’s victory at just under 52%.
The Paris stock exchange then fell by 7%. London and Frankfurt are down by about 8% and 10% respectively. Incredible” declines are also seen in Asian markets. They are around 8% in Japan, just under 5% on the Japanese side. On the Asian side, the British bank HSBC saw its share price fall by 10%. On Wall Street, futures indicate that values will fall by at least 5%.
Faced with this situation, financial analysts have not failed to express their concerns about the impact of Brexit on the values of financial assets.
Significant decline in the pound sterling
Beyond the disruptions on the financial markets, the foreign exchange market is unfavourable for the pound sterling. It is a real black friday for the British currency that is devalued, reaching a level not reached in more than 30 years with a value of about 1.35 dollars. It should be noted that on June 23, 2016, its value had exceeded $1.50. It should also be pointed out that the pound sterling is not the only one to suffer from the situation, since the euro is also falling to 1.10 dollars. For their part, investors quickly reacted, taking refuge in gold, whose value naturally increased to nearly $1.33.
Central banks are mobilizing
With the first not at all encouraging fallout from Brexit, central banks (CBs) are at the centre of attention. They had already indicated that they are preparing to act in order to avoid panic in the financial markets. The Bank of Japan’s reaction was not long in coming. The latter could inject liquidity if necessary, in collaboration with the other CBs, with the objective of minimising the consequences of Brexit.
Some “European” reactions
Faced with an exceptional event, official European reactions follow one another. First, it is worth noting the resignation of Prime Minister David Cameron.
On the French side, an extraordinary Council of Ministers at the Elysée is scheduled to be held at 4 p.m.
In Switzerland, a toll-free number has been opened and made available to Swiss nationals and companies. This allows foreign ministries to answer questions directly related to Brexit.
For its part, Scotland, which was not in favour of Brexit, is considering independence, while Ireland, which had the same position, is calling for a referendum on reunification.
What are the objectives and results for Great Britain?
According to the statements of British pro-Brexit politicians, the exit of the country from the European Union will bring two main results. On the one hand, immigration can be better controlled. On the other hand, the country will be less “subject” to European laws to establish regulations that would then allow it to evolve in its own way, at its own pace and without constraint. For many financial analysts, the review is rather mixed.
This exit from “Europe” in the United Kingdom is even likened to “economic suicide”. The country could even lose its fine AAA rating from financial rating agencies. If one thing can be said, it is that the United Kingdom is now entering a period of uncertainty for an indefinite period of time. On the other hand, the negative and alarming effects on financial markets are very real. To be continued..
The Brexit was indeed the opportunity to take advantage of high volatilities on the pound sterling, brokers like IG had communicated on the possibility of this scenario and it is very likely that scalpers and day traders. Remember not to leave your swing positions open for tomorrow.