Tuesday, June 28, 2016

Brexit - The unexpected has happened

Well, Brexit has happened and it was really unexpected (at least to me). I had assumed that British common sense would have prevailed even though the opinion polls showed that it was an even split between the Leave and Remain camps leading up to the 23 June referendum.

What struck me was how the markets were actually moving up in anticipation that Remain would win, only for the vote count to reveal otherwise.

The fact that some British people were still googling "What is the EU?" after the referendum only shows how ignorant some people might have been. I think many of those in the Leave camp were probably not entirely clear on what the implications were. They wanted more autonomy, but now probably feel that this is coming at a cost.

Markets dived down sharply on 24th June. One of the worst crashes I have seen so far. The pound also lost quite a bit of its value. I recall seeing FTSE 100 dropping around 7%. It hit a low of 5788.70 but managed to recover some ground on 24th and 27th June. 28th June, the FTSE100 seems to be recovering and is trending up at around 2.6% even as I write. Most Asian markets have avoided a steeper fall on 27th and 28th June. The Nikkei 225 which was the worst hit on 24th June has also recovered some ground.

But only time will tell whether all these new risk factors play out.

As of now, we know that David Cameron will be stepping down as Prime Minister. Even the Labour Party Jeremy Corbyn faces a vote of no confidence. Jonathan Hill has also stepped down as British Commissioner to EU.  Political uncertainty abounds and we can be certain that general elections would be called soon.

Meanwhile, the UK has also had its credit rating cut by S&P and Fitch. S&P had said that the leave result would "weaken the predictability, stability, and effectiveness of policy making in the UK".

David Cameron in his addressee to the House of Commons has also told MPs that negotiating an exit would be the civil service's most complex and important tasks for decades.

Meanwhile, Merkel has already fired off a warning shot that there shall be no "cherry-picking". UK thus does not get to choose market access while rejecting the free flow of people.

Too many moving parts in the coming months and years ahead. A Brexit negotiation might not be done for many more years to come. The two years provision under Article 50 might not be enough.

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