Brexit uncertainty keeps shaking the world’s financial markets

London stock exchange and City

A view inside the London Stock Exchange. Location: London – Stock Exchange / Reference: P-029216/00-01 / Date: 02/10/2015. © European Union , 2015 / Source: EC – Audiovisual Service / Photo: Jack Taylor

The Bank of England (BoE) published yesterday its Financial Stability Report warning about the risks that the UK economy is facing after the Brexit vote on June 23. The uncertainty that Britain undergoes both economically and politically is something that the BoE takes into great consideration and aims to provide immediate remedies.

While the sterling is hitting a 31-year low dropping to 1.3001 against the U.S. dollar and various shares experienced losses in yesterday’s session, the global government bonds become more favorable as safe haven assets are lowering their yields dramatically.

Moreover, the financial meltdown keeps expanding as major investment funds such as Standard Life Investments, Aviva Investors and M&G suspended their UK property real estate funds, exerting extra pressure on the British pound.

BoE warns and acts

Thus, the Bank of England (BoE) revealed its concerns through its Financial Policy Committee (FPC) which publishes a Financial Stability Report twice a year. Some of the EU referendum fears have already started to materialize. More specifically, “portfolio flows into UK equities and corporate debt have appeared to be slowed and sterling has experienced its largest two-day fall against the dollar since floating exchange rates were reintroduced almost half a century ago” Mark Carney, governor of BoE, stressed.

The BoE has already stepped forward and lowered bank capital requirements in order to provide extra liquidity to the UK market by lending an extra 150 billion pounds to businesses and households. The reduction of this capital buffer from 0.5% to 0% will stay put at least until June 2017, providing extra credit flexibility.

BoE’s next meeting, which takes place next week, is eagerly awaited since the upcoming measures will aim at reducing the Brexit uncertainty and reverse the economic downturn of the economy. Among those will surely be the cutting of the key interest rates which have been steady to 0,5% as well as the restart of quantitative easing.

Sterling and bond yields hit record lows

In the aftermath of the EU referendum, the plunge of the British pound against the euro and the dollar evolves rapidly. The exchange rate of gdp/usd reached 1,3036 yesterday tumbling by 12,37% compared to June 23. In addition, the sterling suffered losses of 11,04% against the euro in just 12 days time.

The government bond yields keep on declining since the surprising decision of the Britons to leave the European Union. Particularly, the US 10-year Treasury yield closed yesterday at 1,367% while the 10-year government bond yields of Germany and Switzerland fell far below zero. It seems that as uncertainty keeps on looming above the world markets, those yields will continue slumping because investors eventually lose their confidence and flee rapidly towards safer assets.

Stock markets fall as banking sector plunges

The world major stock markets experienced losses yesterday. The Wall Street stocks closed negatively with the S&P 500 losing 14.55 points and the Nasdaq Composite dropping by 0,82%. Furthermore, the European shares expressed by the FTSE EuroFirst 300 fell by 1,53% while MSCI which represents stocks in 45 countries worldwide dropped by 1,2%.

The banking sector is the one to have suffered the most though. Particularly the Italian banking shares have fallen by 57% YTD and by 30% since June 23. The latter creates serious issues in the EU which is most likely considering of taking immediate and precautionary measures to avoid any contagion of the non-performing loans to the rest EU member states. The outlook of the Italian economy is expected to get even worse if Matteo Renzi, the Italian Prime Minister, loses in the referendum on constitutional reforms next October, something that would inescapably lead to his resignation.

Will the central banks reverse the bad economic outlook?

All in all, Europe and the rest of the world have undeniably entered into unchartered waters since June 23 and the financial markets seem to respond nervously as investors have lost their confidence towards a successful divorce of the UK with the EU and global growth prospects. Further, the UK economy is threatened by short-term downturn in investments and commercial spending which pushes growth down to zero or even to negative territories. Britain will certainly need time to catch up, while at the same time there is no strong government in office.

However, the Bank of England and the European Central Bank are well aware of the fact that the Brexit vote will have severe impact on the UK and European economic growth. They are both expected to react in the coming months by providing more direct injections to the economy in an attempt to reverse the ominous outlook ahead.

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Featured Stings

The next 48 hours may change the European Union

A young European voice on Grexit: too high a bill and too big a deal!

Migration crisis update: lack of solidarity not only among EU leaders but also EU officials

EU and India re-open talks over strategic partnership while prepare for a Free Trade Agreement

JADE Testimonial #1: Marcello @ Enlargement

EU agrees on Ukraine – Georgia visa-free travel amid veto risks and populist fears

ITU Telecom World 2016: it’s all about working together

Schengen is losing ground fast revealing Europe’s clear inability to deal with migration crisis

Eurobarometer: Not a single answer about what the Banking Union will cost to citizens

Eurozone examines the prospect of issuing debt paper jointly

Will Merkel ever steer the EU migration Titanic and restore her power in Germany?

COP21 Breaking News_09 December: List of Recent Climate Funding Announcements

CDNIFY @ TheNextWeb 2014

COP21 Breaking News_08 December: Cities & Regions Launch Major Five-Year Vision to Take Action on Climate Change

Dangerous Trumpism in the Middle East with an anti-European edge

Who threatens the lives and livelihoods of Ukrainians?

Beyond self-regulation: dealing with Europe’s consumption problem

Who cares about the unity of Ukraine?

Commission: Gifts of €6 billion and free trainees to ‘help’ poor employers

Which EU countries have to correct their economic policies?

At the edge of humanity: refugee healthcare in Greece and the EU

Can the EU afford to block China’s business openings to Europe by denying her the ‘market economy status’?

What lessons to draw from the destruction of Syria

Italian voters put again the European Peoples in the Brussels picture

Hostages to a rampant banking system

COP22 addresses a strong global pledge to effectively implement the Paris Agreement

The European Parliament floating over the South China Sea

What UK and EU risk if Brexit “wins” these elections

EU members commit to build an integrated gas market and finally cut dependency on Russia

Extra mild ECB tapering of QE and zero interest rates keep euro low

Greece’s Tsipras: Risking country and Eurozone or securing an extra argument for creditors?

World Health Organisation and young doctors: is there any place for improvement?

To entrepreneurship and beyond!

G20 LIVE: World Leaders in Turkey for G20 Summit. Global Economy will be discussed in Antalya

EU Commission accuses Germany of obstructing growth and the banking union

Search Engine neutrality in Europe in danger: Are 160.000 Google filtering requests good enough?

European Commission determined to conclude EU-Mercosur trade deal this year despite French concerns

Lagarde: Keep feeding the banks cut down wages and food subsidies

The consequences of Brexit seen by a European young entrepreneur

Ukraine-EU deal sees the light but there’s no defeat for Russia

Refugee crisis update: EU still lacks solidarity as Hungary and Slovakia refuse to accept EU Court’s decision

“For my children Italy will be an innovation lab and not a museum”; the Sting reports live from World Economic Forum 2015 in Davos

Merkel refuses to consider the North-South schism of Eurozone

Why the ECB had to clarify it caters for the entire Eurozone not just Germany?

How dearly will Germany pay for the Volkswagen emissions rigging scandal

Medical students: The need for emigration

The British “nonsense”, the relaxed Commissioner and the TTIP “chiaroscuro” at this week’s Council

International World Summit Award calls for outstanding digital applications with impact on society from 178 UN member states

Investing in working conditions and quality jobs

Threats from mammoth banks and Brussels fuel May’s poll rates

Eurozone guarantees all banks with…taxpayers’ money

Crimea, a wicked game of political chess and a ‘big’ coincidence

ECB’s new money bonanza handed out to help the real economy or create new bubbles?

Is Eurozone heading for disinflation?

Cyprus Parliament says no to blackmail

The three sins the EU committed in 2015

Eurozone: Despite anemic growth and shaky banks marks record trade surplus

Ukraine: turning challenges into opportunities


EU sets ambitious targets for the Warsaw climate conference

Will Europe be able to deal with the migration crisis alone if Turkey quits the pact?

More Stings?

Speak your Mind Here

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s