Yesterday was Independence Day, or so the Sun and Nigel Farage had it, but celebration over Brexit does little to explain why the the City has woken up this morning with such a stinking hangover.
The FTSE 100’s free fall after the Brexit vote was sufficient to give even the soberest of traders a headache. It plummeted 11% on the open to go below 6,000, though by midday half the over losses had been recovered. The currency markets told a similar story, with sterling at $1.37, having lost 7% in a morning.
As our editor’s blog points out, Brexit isn’t the end of the world, but that hardly means the next few weeks or years will be fun. Once the short term shockwaves from the referendum vote have died down, what can we expect?
Markets: known unknowns
The markets will continue to be depressed. Sorry. Stocks fell because investors took a bet and got it wrong. They will stay down, however, because investors are as clueless as the rest of us as to what happens next.
Prices of securities are a function of risk and reward, both of which fund managers spend considerable effort assessing. Those risks and rewards now depend on so many variables that your average hedgy is in no position to analyse.
Politics is not economics. The nature and timing of post-Brexit trade agreements with the EU and the rest of the world are not things that a team of analysts can accurately predict, and they know that.
Until there’s a better idea of just how serious the risks actually are, money will find its way to safe places, like gold, dollars and yen.
Note that European markets are not on the list. The DAX, CAC 40 and IBEX have all fallen even more dramatically than the UK, perhaps because the earlier risks that seemed so remote have suddenly come to the fore. What if Brexit triggers a wave of referendums that bring down the euro or even the single market itself?
The same uncertainty affects companies. Every large multinational will have made a contingency plan in the event of a Brexit, but with little idea of what kind of trading relations Britain will have in two or three years’ time, these will by necessity be vague.
This means that businesses are unlikely to plough investments into England’s green and pleasant land until they have a better idea of the direction the next prime minister wants to take. Even then, of course, there’s no guarantee a PM seeking, say, membership of EFTA or free trade with NAFTA will be able to get it.
This doesn’t mean all firms will be on a holding pattern, however. For some, there could be opportunities from a Brexit.
Maybe ‘Brussels red tape’ really has been holding some of them back from prosperity. Maybe there are growth markets that we weren’t able to access easily behind EU tariffs, that firms will now have a shot at. This is the time for business to get involved in conversations with politicians about what sort of economic framework would serve the country best in a post-Brexit world.
...and a touch of social responsibility
It’s also a time for business to do the right thing. In the face of popular panic, it is socially responsible of businesses to reassure people that the world won’t end and employees won’t lose all lose their jobs on Monday.
Yes, they should be realistic, but there’s no point worrying people unnecessarily. Scaremongering helps no one now.
MT’s inbox was overwhelmed this morning by a deluge of comments from every business this side of Calais. You may not have thought Dave’s Chippy down t’ street would have an opinion on the referendum (or indeed a PR team), but believe me, it does.
It’s been striking that the tone of almost all of them has been constructive – the situation may not be ideal, but Britain’s got a lot going for it apart from its expiring EU membership and we need to make the best of things. If that spirit continues, we may have some hope.