Brexit

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During the past few weeks, market followers were focused on an unknowable outcome and then hypothesizing on what the impacts will be from that unknowable outcome. What a crazy way to invest. The same people now know the outcome and are scrambling to guess the impacts and then spending the rest of the day further guessing what the impacts of the impacts might be. It’s hard enough to do that in chess, let alone in the dynamic world we live in.

 

We are surprised at the “leave” decision, but the reaction so far has been within our expectations for such an event. We anticipate that although in the short term market volatility in the financial markets will rise, calm will return.

 

Please see below for a brief summary of “What Happened”.

 

What Happened?

·         UK Brexit referendum to leave the European Union passed with a 51.9% of voters choosing to leave the EU

·         Prime Minister Cameron has decided to step down as a result

·         Senior Labor Party MP’s have tabled a motion of non-confidence in their leader Jeremy Corbyn

·         A second Scottish Independence Referendum in “inevitable” according to First Minister Nicola Sturgeon.

·         G7 central banks have taken steps to ensure adequate liquidity

 

Market Reaction:

·         We are seeing a selloff in risk assets, with high volatility in the capital markets

·         Equities:

o   North America: S&P 500 -2.65%, TSX -1.25% as of this writing

o   Europe: Euro Stoxx -7.55%, FTSE -2.35%, DAX -6.19%, France -6.98%, Spain -11.08%

o   Asia: Nikkei: -7.92%, Hang Seng -2.92% as of writing

·         Commodities:

o   WTI: -4.27% as of this writing

o   Gold spiked and sits at $1316.83, +4.35% as of this writing

·         FX:

o   Sterling has worst day ever on record dropping as low as $1.33, currently sitting at $1.37.

o   The yen, viewed as a safe haven currency is now over 100 per USD.

·         Bonds:

o   In North America, long term bonds are rallying on both sides of the border.

o   As a Canadian investor, US priced long term bonds are getting the biggest bump from both the increased demand as well as US currency appreciation.

o   German bonds also rallying back into negative territory yielding -0.06%

 

Please give us a call if you have any questions!