The UK Independance Day: Financial markets in turmoil & a long period of political uncertainty

News item -

Following this morning's developments in the UK, please see below the comments from ABN AMRO Investment Solutions.

  • Clear but not large Leave (51.9/48.1): Given the recent Remain-leaning polls and subsequent risk rally, the UK's vote to leave is a nasty shock for markets.
  • Scotland and London were voting heavily for Remain, but across rural England and in many towns, a revolt against Britain’s elite was under way.
  • The early indications in the night rattled global markets. Japan’s yen, a barometer of risk aversion, surged 3.2 per cent against sterling. The 10-year US Treasury yield was down 21 bps at 1.53 per cent. Gold rose above $1300 an ounce.
  • More globally, risk aversion (USD and gold) is spiking, equity markets experience a flash sell-off, both the British pound and the euro are depreciating.
  • We recommend to stay away from UK cyclicals and European financials that are the obvious candidates for the sell-off and to closely monitor liquidity.
  • UK recession scenario with a moderate to low impact for the euro area and on the global economy, but the indirect impact via the tightening of financial conditions could be stronger on the ex-UK activity.
  • From a mid- to long-term perspective, the outcome will now depend largely on the response of monetary authorities as well as European governments