So .. what do we do now?

Discussion in 'Market Commentary' started by SimonDenham, Jun 24, 2016.

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  1. SimonDenham

    SimonDenham Simon Denham CEO Mercor Index Staff Member

    My warning in yesterday’s comment has come to pass.

    It looks like the turnout was ‘only’ 71%. Higher than in recent general elections but significantly lower than most were expecting.

    I feel that this will have been the dominating factor. Whilst the ‘young’ in England have apparently been massively in favour of Remaining in the EU many of them were obviously too busy doing something else to actually go and vote.

    As I have commented in the past it has been difficult to find anyone in my neck of the woods who was actually voting to stay in and looking at the turn out sheets as I went in to put my X it was massively above 71%. There were hardly any spaces remaining to be ticked off. As many have noted over the last four/five months it is hard to get enthusiastic about something that you already have whereas for those who want change the motivation is all encompassing.

    So, in the end, three old blokes and their dog did eventually beat the combined might of virtually everyone else. Farage, Boris and Gove seem to have pulled off the almost impossible feat of convincing the British electorate that they know more than …well… nearly everyone else on the planet.

    The markets are massively lower this morning but (aside from the pound) they have all been lower in the recent past so the impact here on the economies of the world should be muted. Indeed the overall effect on markets seems to be well over done. The total value of the UK’s economy in the global market (all of it) is about 3.5% so markets dropping by 10% merely on the exit from the EU trading bloc seems a little extreme.

    If I was putting a trade on today I might be tempted to go against the grain.

    The simple fact is that the politicians will have to get around the table and sort something out. No matter what that idiot Junkers says (and sometimes I think he should be shut away for all our health) the simple fact is that the political sector in the UK wants to remain so he and his colleagues will be sitting around a table to negotiate with people he actually agrees with.

    I cannot for the life of me understand why we need a free trade bloc just within the EU. Why cannot the EU have a free trade bloc with everyone? Which would do more for global growth as a whole than anything else.

    Economic Data

    Yesterday’s numbers told us very little and who is going to be bothered with today’s anyway?

    But for the look of the thing.

    We will get the German business climate numbers out at 09.00 these are looking to be around 107.0. Above parity at 100 and normally would be seen to be a good figure but this number can presumably be shoved in the dustbin as presumably next month’s will now be much worse.

    This afternoon we get the US Durable Goods numbers which are expected to be slightly lighter at about negative 0.5% as April’s number was significantly higher than average and the trend seems to be for one good figure followed by one bad.

    Then at three we get the Michigan sentiment number which is also looking to slip a little.



    What can we say … down

    As I mentioned yesterday it was not really sensible to have a speculative position open after about 3pm London Time. For some reason the early indicators (probably from some personal polls taking in the capital) were for the Remain camp to be on the winning side and the FTSE rallied up to 6460 which probably took out most of the shorts. Followed this morning by the total collapse from midnight onwards as the true results came into focus which will have killed off the longs.

    So here we stand with the markets being called at 5800 (I have no idea where they will be by the end of this sentence let alone by the time you read this) off 500 points.

    Support and resistance points are meaningless in the current environment and I will not stretch your credulity by mentioning any.


    The DAX has had a range of over 1000 points already this morning and since 04.30 yesterday afternoon has retraced the entire trading range of the last few months.

    Oddly enough the futures have bounced off the same low (roughly) as we hit last week when the Exit side seemed to have a lead. So the reality appears to be little different to the fear.

    Oddly enough the Dax probably has more to fear from an EU backlash than anyone other than the UK itself. German companies export more to the UK than any other country aside from the US and France so some kind of trade war/barriers will harm them more than they would harm the UK.

    US Markets

    The US markets are lower but as we might have expected the move is just half of the impact on the European sector or the UK.

    There is an argument that the US might actually benefit from this as if the EU turns nasty then the UK’s eyes might turn westwards.



    The Euro has dropped heavily versus the dollar down 3.5% which will be music to the ears of exporters and may offset the initial reactions to a UK exit.

    The cross is at a four month low so we have been here before in the recent past and the end of the world was not happening then.

    Once today is out of the way we can expect the cross to pick up again over time but the important point about this comment is ‘get today out of the way first’


    So the pound is off 10% as I write against the dollar which will have implications for inflation in the UK. Perhaps Mr Carney will not have to write his letter to the Chancellor in a few months time.

    Fuel will go up almost immediately and the price of a Litre of fuel will probably head towards 120p in the short term.

    We have hit the low since 1985 at 1.3225 but since then have bounce a couple of cents and are currently at 1.3500 which we hit back in 2009 in the midst of the financial crisis.

    Whilst we have fallen 10% in one day the currency has been on the way down for quite some time since hitting a recent times peak of 1.7200 in 2014. For all the talk of doom and disaster it is hard to see what will really change that much. The UK will no longer be an irritating member of the EU which is to be regretted but in reality what influence does one country amongst 28 actually have (if they are not Germany or France)?


    Oil is slipping in line with other markets but not much and no more than it did a few days ago.

    Of all the markets in the world this is the least affected by the UK decision


    Massive rally but it is dubious if the Yellow Metal can hold onto the move. Gold is a haven against nasty things happening. Once the nasty thing is out of the way its purpose is over. Not only thins but the dollar has rallied strongly as well which has a habit of impacting the price negatively in the longer term.

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