On behalf of the Altium Investment Committee;
The British citizens voted last night to leave the European Union. After hours of commentary leading into this morning it appears that uncertainty is the only thing people can agree on. Maybe the "why" has a consensus, that the British people voting to leave want to firm up their borders and get out of the free movement rules within the EU. The U.K. is the second largest economy in the EU behind Germany and this decision has sent a shockwave through the markets.
David Cameron, the British Prime Minister, has said that he will resign. But what happens next is unknown. A few of the concerns include; Who else might leave the EU; Will this divide the U.K.; What happens to global currencies; Does this fuel terrorism; How will this impact trade; How will this impact political elections throughout Europe; Does this signal more quantitative easing globally; Does the Fed take rate hikes off the table or do they take us in the other direction. All of these unanswered questions will loom over the markets for some time as the U.K. withdrawal process is expected to take up to 2 years. However, we should keep in mind that a lot will change between today and the official exit from the EU. This vote is not legally binding (although it’s hard to imagine the British Parliament not respecting the vote) and there will be many negotiations between the EU and London where the official terms of the divorce and new relationship will be formed.
Already volatile, the markets clearly do not like this. World stocks are in the red and the British pound is falling in value. European markets are down broadly; The S&P Euro 350 is down roughly 6.5%, the German DAX index is down 6.7%, and the London FTSE index is down roughly 3.5%. In Asia the Japanese Nikkei 225 index closed down nearly 8%. The British Pound is down more than 8% versus the US Dollar. As of today’s close the S&P 500 finished down roughly 3.2%, which is a slight improvement from the day’s lows. To the upside are safety assets such as top rated government debt in Germany (yields now pushed negative) and the United States (10 year treasury yields is roughly 1.6%) and Gold (GLD up 4%).
While this reaction to the news is severe, the decision out of the UK was not completely unexpected. As the markets digest this news and experts speculate about its impact, we should keep in mind that this is more of a symptom than a new disease. We will continue to monitor the situation, but please reach out to us if you have any specific questions.
Gregory Slater, CFA, CFP®
Chief Investment Officer
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