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!
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