A rude awakening: Markets react to Brexit shock

The news of Britain voting to leave the EU hit markets unexpectedly, with foreign exchange markets in particular having priced in a “remain” vote, the GBP plunged from a one year high by close of play yesterday to a 30 year low as markets opened today.

Stock markets across Europe were  equally volatile, with indices across the continent plunging into double digit negative figures. At the time of writing, German stock market index DAX30 fell by 10%, while indices in the European periphery were hit even harder, with the Spanish Ibex35 falling by nearly 11% and the Greek ASE falling by nearly 13%.

Tobias Basse, analyst at Nord LB comments on the potential long-term impact on stock markets: “Politicised stock market movements are said to be short-lived. Whether this old stock market truth holds true in the current context might have to be questioned. Critics might consider the British decision to exit as sign of a broader malaise within the Union. Added to that are further uncertainties such as a potential Scottish vote for independence, market participants are therefore facing further geopolitical risks. In this environment, we can anticipate higher risk premia on financial markets and subsequently ongoing pressures on stock markets going forward.”

Meanwhile, commodity markets felt the impact of the hunt for safe haven assets, with the price of gold briefly shooting up to +20% as markets opened, before settling around +12% at the time of writing. Gold trading firm Sharps Pixley commented: “At Sharps Pixley we have seen our busiest day ever with online sales draining our stocks of our larger bullion bars and prompting us to call on emergency reserves of kilobars from Germany. Our stocks of many coins have also been bought out with only limited availability today.”

Similarly, the CHF felt the growing pressures of investors looking for safety, with the Swiss National Bank announcing that it had intervened again in foreign exchange markets in order to prevent extreme upward pressures on the Swiss currency.

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