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.

the sting Milestone

Featured Stings

Stopping antimicrobial resistance would cost just USD 2 per person a year

Can we feed everyone without unleashing disaster? Read on

These campaigners want to give a quarter of the UK back to nature

How to build a more resilient and inclusive global system

‘Every ventilator becomes like gold’ – a doctor’s stark warning from Italy’s Coronavirus outbreak

Medical Education is #NotATarget

Indonesian tsunami death toll climbs over 400 as Government-led relief efforts are stepped up

Supply chains have been upended. Here’s how to make them more resilient

World food security increasingly at risk due to ‘unprecedented’ climate change impact, new UN report warns

Bank resolutions set to remain a national affair

UN Children’s Fund chief condemns ‘horrific’ Kabul bomb attack

‘Terrorist Iranian regime’ must be checked; Saudi Foreign Minister urges financial pressure

UN rights office calls on Zimbabwe Government to end ‘crackdown’ in response to fuel protests

UN agriculture agency digs in to help forests and farms build resilience to climate change

The EU Parliament and the ECB unknowingly or unwillingly fail to protect our financial assets

Korea should adapt its migration programmes to ensure continued success in the face of expected challenges

COVID-19 is a threat to waste pickers. Here’s how to help them

Those who produce food are among world’s hungriest – UN rights expert

Job automation risks vary widely across different regions within countries

Counterfeiters are taking advantage of the pandemic. Here’s how to stop them

As fighting in Libya escalates, so does number of children ‘at imminent risk of injury or death’

10 of Albert Einstein’s best quotes

Draghi: A bridge from Brussels to Berlin

Draghi’s top new year resolution: Quantitative Easing

TTIP: why it is worth not to pull the covers over your head?

How to future-proof India’s economy

The children’s continent: keeping up with Africa’s growth

How energy infrastructure is shaping geopolitics in East Asia

Protection of transported animals: Parliament establishes inquiry committee

Budget Committee backs €2.3 million worth of aid to help 550 redundant media workers in Greece

Amid pandemic detours, mental health matters

FROM THE FIELD: Liberia boosts efforts to guard against rising seas

Vaccination: European Commission and World Health Organization join forces to promote the benefits of vaccines

Who’s promised net-zero, and who looks likely to get there?

‘Ghost fishing’ is threatening our oceans. Here’s how we can tackle it

Brazil: A strategic partner for the EU

Mental health in the pandemic: it’s no Rubik’s cube

A clean energy future with hydrogen could be closer than we think

These 5 charts show our shifting behaviour around coronavirus

If a virus could sing … Could this musical version of COVID-19 help us defeat the disease?

Venezuela migrant crisis begs a ‘coherent, predictable and harmonized’ response: UNHCR

5 ways students can graduate fully qualified for the Fourth Industrial Revolution

REACT-EU: EU support to mitigate immediate effects of the COVID-19 crisis

The EU stops being soft with 10 Downing Street about Brexit

Europe’s dirty air kills 400,000 people every year

Why the world is not as globalized as you think

“Be aware where you put your I Agree signature on and something else”; now Facebook by default opts you in an unseen private data bazar

State aid: Commission approves €286 million Finnish measure to recapitalise Finnair

Topic: Mental Health in times of pandemic: What can each individual do to lessen the burden?

The European Brain Drain: a truth or a myth?

How data can help mining companies tackle their trust deficit

Algorithmic warfare is coming. Humans must retain control

EU prepares a banking union amidst financial ruins

Efforts to save the planet must start with the Antarctic

How digital identity can improve lives in a post-COVID-19 world

Medical ethics in the age of the social media influencers

Three reasons to be optimistic for the future of Asia

Commission supports normalisation in Greece through activation of post-programme framework

Execution of juvenile offender in Iran ‘deeply distressing’ – UN rights chief

Chernobyl nuclear disaster-affected areas spring to life, 33 years on

Blockchain could boost global trade by $1 trillion

Why rich countries are seeing more poverty

5 charts that explain big challenges facing Italy’s new government

More Stings?

Advertising

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 )

Google photo

You are commenting using your Google 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 )

Connecting to %s