Dear PGM Capital Blog readers,
As can be seen from below figure, in a referendum called “BREXIT”, held on Thursday June 23, approx. 51,9 percent of the people of the United Kingdom has voted in favour of Great Britain to leave the European Union, shocking the world and revealing a divided country.
That means that in the coming months, British and European leaders will begin negotiating the terms of Britain’s departure.
After a lengthy and bad-tempered referendum campaign, Britons voted to sever the country’s 43-year membership of the EU, sending tremors across Europe and triggering financial market turmoil across the globe.
A COUNTRY DIVIDED:
A closer look at the Brexit Vote reveals a country down split down in the middle, a nation divided sharply along generational, educational and regional lines as can be seen from below charts.
Voting by Age group
Voting by Country
Voting by level of Education
MARKETS DOWN WORLD WIDE:
Markets were caught completely off-guard as the first results landed. In a frantic day of trading, the pound dived to a 30-year low against the USD-Dollar, setting a record intraday swing of more than 10 percent between its high and low points as can be seen from below chart.
The UK, FTSE 100 slumped 8.7 per cent on opening before trimming losses to 3.15 percent at the close of the trading day as can be seen from below chart.
Bank stocks took a hammering, with Lloyds down 22 percent, Royal Bank of Scotland down 18 percent and Deutsche Bank falling 17 percent.
The Euro Stoxx bank index fell 17 percent, back to levels last seen at the depths of the eurozone debt crisis in August 2012.
German DAX-30, and Japan Nikkei-2015, tanked respectively with 6.82 percent and 7.92 percent as can be seen from below charts.
USA stocks finished a bruising trading session with the benchmark S&P 500 sliding 3.6 percent to 2,037, as can be seen flow below chart, which was its steepest one-day decline since August of last year.
The US dollar posted one of its biggest rallies on record, and the yield on the 10-year US Treasury dropped 18bps to 1.57 per cent.
GOLD:
Gold prices soared to a two-year high on Friday, after Britain’s decision to leave the European Union sent investors flooding into safe-haven assets.
As can be seen from below chart Gold for August delivery settled up 4.43 percent at US$1,319.10 a troy ounce on the Comex division of the New York Mercantile Exchange, its largest one-day gain since September 2013.
The precious metal traded as high as US$1,362.60 in electronic trading following the decision, and closed at its highest level since August 2014 as can be seen from below chart.
PGM CAPITAL ANALYSIS AND COMMENTS:
Impact for the UK
In the meantime, while writing this article, credit ratings agency Moody’s has downgraded the UK Government’s bond rating from stable to negative in light of Britain’s decision to leave the European Union.
The agency warns that Britain’s economic growth will be weaker, its economic policymaking may be diminished and the government’s fiscal strength reduced.
In a statement Moody’s said:
“Expects a negative impact on the economy unless the UK government manages to negotiate a trade deal that largely replicates its current access to the Single Market”
The record, almost 9 percent slump in the pound on Friday has raised fears that UK inflation could spike (as imports will cost more).
We believe that a year from now, when the emotions have fade, the British economy will be weaker, inflation and unemployment will be higher, house prices will probably be lower and some prominent firms will have left London for other European capitals.
It’s possible the UK will end up better off down the road, as Brexit supporters claim, since the country will no longer be bound by arcane EU rules dreamed up by unelected bureaucrats in Brussels. But that will come, if at all, only after several years that seem likely to be painful for Brits and especially for the working-class voters who were the most ardent supporters of Brexit.
The IMF warned that leaving the EU, would hit British living standards, stoke inflation and wipe up to 5.5% off GDP, and financial insiders and analysts are already predicting a recession and a market shock that could last for years.
Global impact:
Its almost 48 hours, since it first became clear that David Cameron’s EU referendum had not gone as the PM had planned.
That result of the Brexit vote has triggered one of the most dramatic, volatile and downright scary trading sessions in the last decade, estimated to has wiped out over two trillion dollars of market value, worldwide.
The exit of Britain out of the EU has also increased the chances of a hard world wide global recession, for which reason, all major global markets closed Friday, June 24 deeply in the red.
Based on this we believe that politicians and central bankers will do their utmost to avoid this recession, which has the potential of becoming a depression, by lowering interest rates to near zero or even negative and by introducing more stimulus and quantitative easing programs.
These measures will put an upwards pressure on the the price of Gold and other precious metals.
The PGM Index and Brexit:
Since 2013, we have warned our readers that the Global Economy is very fragile and the so called recovery is a fake only kept alive by an artificial life line of low interest rates and money printing.
Due this we have advised our readers to seek the safety by investing in physical Gold and other precious metals.
Due to this our readers would be wondering how did the PGM Component 50 Index has performed on Black Friday, June 24, 2016.
As can be seen from above chart, the PGM Component 50 Index, which for 52 percent consists out of investments in precious metals, was up today with 0.45 percent and is YTD up 27.7 percent and has beaten al major global markets.
Until next week.
Yours sincerely,
Eric Panneflek