Financial Times, Bloomberg, Washington Post

Britain Votes to Leave the European Union, Triggering Market Shockwaves

Jun 24, 2016  •  Post A Comment

“Britain has voted to leave the EU in a popular revolt that will send shockwaves across Europe, leaving David Cameron’s premiership hanging in the balance and triggering financial market turmoil across the globe,” reports the Financial Times. [Note: the Financial Times is behind a firewall and may charge you to read its content.]

The story adds, “As the scale of the uprising became clear, the pound dived to a 30-year low, setting a recond intraday swing of more than 10 per cent between its high and low points; FTSE 100 futures slumped 8 per cent. Rating agency S&P confirmed that the UK is likely to lose its final AAA credit rating.”

In a separate story the Financial Times writes: “The pound dropped 11 per cent to its lowest level in more than three decades as the market awoke to the shock realization that the Leave camp had upset the odds to score a stunning victory in the UK referendum on EU membership.

“Dramatic falls in sterling peppered market trading early on Friday, wiping out earlier confidence from exit polls that suggested the Remain camp would prevail.

“So acute was market uncertainty as early counts came in that sharp falls were quickly followed by equally severe rises, until the market lost faith in the pound with around half the votes counted.”

How could the U.K. vote to leave the European Union affect the U.S.? Says an article by Bloomberg, “The decision will have a direct impact on the U.S. because of American reliance on the U.K. for security and trade matters across Europe, said Mary Nugent, who teaches U.K. politics at Rutgers University in New Jersey, where she is a doctoral candidate.

“‘The political alliance the U.K. has with the U.S. is really important,’ said Nugent, who previously worked for a Labour Party member of the British parliament. ‘The fact that the U.K. is no longer going to be at the table in the European Union is going to be a big blow to U.S. diplomacy and trade negotiation.’”

However, the news for Americans is not all bad, notes the Washington Post:

“‘A U.K. vote to exit the European Union could have significant economic repercussions,’ Fed Chair Janet L. Yellen said Tuesday.

“At the same time, Brexit has spawned the recent bout of volatility in global financial markets. That has anxious investors scurrying for safety — and few assets are safer than U.S. Treasuries. High demand for government debt pulls down interest rates.

“That all translates into ultra-low mortgage rates for American households. And with Britain voting for Brexit, they could go even lower.”

The Post adds, “Many Americans are invested in the stock market through their retirement plans….On Wall Street, the direct exposure to Britain is not huge. Companies listed on the S&P 500 derive 2.9 percent of their sales from Britain and 11.5 percent from all of Europe, according to FactSet. But analysts say the worst-case scenario is that Britain’s decision to leave creates political and economic upheaval that sends investors running for the exits, catalyzing a sell-off in global markets that tests the stability of the international financial system.

“Retirement plans are long-haul investments, so most financial advisers don’t recommend making significant changes to your portfolio when faced with  turbulence.”

To read more about this story, please click on the various links above, to the Financial Times, Bloomberg and Washington Post. The links will take you to the original articles in those publications.

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