Brexit

EU referendum

The UK has voted to leave the EU. Probably it’s one of the most difficult decisions in our times and it will open up a period of profound uncertainty for the UK and the EU. One of the things behind the referendum was the immigration, as you know, having a visa is not (or it wasn´t) a requirement if you are a European citizen. The EU single market requires free movement of labour. According to the law, UK will leave the European Union by 2019, but there is the possibility to leave before. Theoretically, the UK could also unilaterally withdraw from the EU by simply repealing the 1972 European Communities Act.  In my opinion I don´t think they will do the last possibility because it means that the EU legislation and the free trade agreements would lapse immediately.  Leaving the EU would hit growth in the short term, in addition, the decision taken by the British PM will add even more uncertainty in the political environment.

The major issue is to make a trade deal with the European countries.

                                           Source: Reuters, EU Referendum results by area.

After knowing the decision, David Cameron has resigned. In his speech, Mr Cameron said he would stay in office for three months to steady this difficult situation.

                                          Source: Reuters, David Cameron speech.

Coming back to the markets, in the worst case scenario, no transition period, the British Pound would drop to unexpected levels.

Let’s check how the referendum affected the markets.

GBP/USD

 GBP/USD 30 min 24/06/2016

As I expected the one of the biggest movements today has been the cable. The traders worked the whole night.

EUR/GBP

    EUR/GBP 30 min 24/06/2016

The euro has strengthen versus the sterling. But the Brexit can affect the EU in two ways:

·         It can break the European project.

·         Europe can learn from this situation and work even harder to create a real economic union.

EUR/USD

    EUR/USD 30 min 24/06/2016

As I commented before, the EUR has dropped versus the US dollar, there is a growing uncertainty about the future of Europe. Marion Marechal Le Pen said “from Brexit to Frexit”.

Fixed Income Markets

Bund

    Bund Futures 1 day 24/06/2016

The bund futures opened at 168.48, the main reason of that is the extreme movements in the overnight currency markets. During the day if fell to 165.69.

10Y T-Note

    10Y T-Note Futures 1 day 24/06/2016

The 10Y T-Note future opened without gap but it climbed really quickly to 134.25 . In the second part of the trading day it came down to 132.375 .

I will keep you updated, thanks for visiting this post, have a good day.