BREXIT – Uncertainty to Reign Supreme We have seen a classic fear trade in Gold and Sterling this morning with a reversal of the complacent relief rally we saw earlier this week. BREXIT – Uncertainty to Reign Supreme
The biggest moves have been expressed in the Sterling, which has sold off against the US dollar to levels not seen since 1985. Gold has risen in value by 6%, the largest move since January 2009 but so far ranks only in the top 20 daily moves, with the largest being 13.3% in January 1980.
• The fear trade may well be justified as it brings into question the cohesion of the EU project, other member states are now likely to consider referendums stoking EU break-up fears.
• For the UK the next key question to consider is when will Article 50 be invoked? This states the formal mechanism for leaving the EU and details a 2 year timeline for departure. UK politicians may attempt to delay invoking article 50 in order to buy time and informally negotiate with EU member states, leading to further uncertainty.
• There could be another Scottish referendum
• Economist forecasts for UK GDP growth in the coming years vary from -9% to +2% highlighting significant uncertainty over the real impact on the economy
• Gilt and Bund yields are likely to fall in the long-end as growth and deflation fears escalate
• Expect cyclical equities to sell off the most, particularly financials and the energy sector, whilst healthcare and utilities are to be seen as safe havens
• A July and September rate hike for the FED is now off the table
• Gold could rise to $1400 whilst other precious metals such as platinum, offer attractive fundamentals
In this environment uncertainty will reign supreme, when will it subside? this is an open-ended question…
James Butterfill, Head of Research & Investment Strategy at ETF Securities
James Butterfill joined ETF Securities as Head of Research & Investment Strategy in 2015. James is responsible for leading the strategic direction of the global research team, ensuring that clients receive up-to-date, expert insight into global macroeconomic and asset class specific developments.
James has a wealth of experience in strategy, economics and asset allocation gained at HSBC and most recently in his role as Multi- Asset Fund Manager and Global Equity Strategist at Coutts. James holds a Bachelor of Engineering from the University of Exeter and an MSc in Geophysics from Keele University.
