During the campaign period, fear mongering became the centerpiece of advocates from the contending parties of the remain and leave camp. While the “leave” camp focused on immigration, the “remain” camp fixated on economics. For instance, PM David Cameron warned that a choice in favor of Brexit would mean a “self destruct option” for Britain.
Well the day after Brexit, the financial markets have rendered their preliminary verdict.
First, UK’s FTSE was down 3.15% (see green rectangle below), which was bad, but not as bad as the PIGS.
Portugal’s PSI 20 tanked 7.0%, Spain’s IBEX 35 crashed 12.4%, Italy’s MIB collapsed 12.5% and Greece’s Athen’s 20 was smashed by 15.8%. (quotes from Euroinvestor.com)
It has not just been the PIGS though, the French CAC 40 cratered by 8% while the German DAX plunged 6.8%
chart from investing.com
Next, Europe’s banking stocks spearheaded the mayhem. The Stoxx 600 banks was crushed by a horrifying 14.5%. Credit Suisse and Deutsche Bank shares plummeted 16.11% and 17.5%!!!
Brexit only rubbed salt to the extant wounds.
Brexit only rubbed salt to the extant wounds.
Additionally, yields of 10 year bonds of the peripheral crisis afflicted nations spiked. (charts from Bloomberg)
This comes as UK’s Gilt soared to record highs or yields at record lows.
This only means that the yield spread between the periphery and UK has significantly widened.
What yesterday's actions has shown us: It hasn’t been UK that is in trouble but the EU, specifically banking system and the PIGS!
Has Brexit reopened the old wounds from the European debt crisis in 2011?
While it is true that the British pound fell to set new a record low yesterday, what’s more interesting has been the record volatility encountered by the GBP (see chart below from Bloomberg).
The spike in the GBP’s volatility surpassed previous episodes of heightened financial distress, particularly the Great Recession 2008 and in 1992, or when George Soros’ "broke the Bank of England".
Positive for global mainstream markets eh?
No comments:
Post a Comment