Tag Archives: EU referendum

Brexit and the Fed: stock market investors should brace themselves for a bumpy June

This week, Mike van Dulken and Augustin Eden of Accendo Markets tell Hot Commodity why we should brace ourselves for a bumpy June…

An optimistically cautious end to May was punctured by a surprise surge for the Leave camp in the latest UK Brexit poll. Whether this says more about what Guardian readers are thinking as they pack their bags and buggies in preparation for this summer’s festival season, or does indeed reflect a wider swing in sentiment is unclear – and will surely remain so until the result is announced. Remember how polls at the last UK general election showed that they’re not always spot on? Nonetheless, polls are seldom ignored and two markets that certainly didn’t ignore this one were cable (the GBP/USD exchange rate) and the FTSE 100.

The two are only really semi-co-dependent. The FTSE 100 contains so much international exposure as to be almost entirely US dollar sensitive, but the fact that these two markets got a big dose of volatility at the end of May and into June says much about current market sentiment: it’s cautious and it’s jumpy. Cautiously nervous? Nervously cautious? Whichever it is, it doesn’t like loud bangs!

Whoever chose June as the month in which the UK would vote on its future relationship with, let’s face it, the rest of the civilised world could not have predicted that we’d also find ourselves once more staring down the barrel of the US Fed’s proverbial interest rate cannon. And while a mere 25bp rate hike is surely nothing to be worried about, now we’re here, it’s natural to wonder what effect one will have on the other. Might the Fed hold off because of Brexit risk? After all, last September it held off because of “international headwinds”. International headwinds have been a feature of the world for, like, ever. Yet Brexit has no real precedent. On the other hand the Fed went ahead in December, right in the middle of a hideous time for stock markets, just because some jobs were added in the US economy.

The dilemma that faces policymakers right now is hardly a subtle one. June is sure to be a tumultuous month because, right in the middle of it, there’s a potentially paradigm-shifting referendum in the UK. Whatever the outcome, the potential for considerable political unrest in both the UK and Europe is very real indeed, so July may also throw up the sorts of international headwinds the FOMC loathes so much.

All that considered, June might actually present the more realistic opportunity. Will the US simply get it out of the way and adopt the brace position for what will surely follow?! Whatever happens, we can be sure that the FTSE 100 index and the GBP/USD pair will find themselves with few hiding places, if any, for the remainder of the year. It’s time to buckle up.

This commentary was provided exclusively for Hot Commodity by Accendo Markets: https://www.accendomarkets.com.

Breakfast with Hot Commodity: the Brexit debate

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Hot Commodity’s inaugural event, held yesterday morning at The Clubhouse in Mayfair, went off with a bang! JD Wetherspoon boss Tim Martin and Philip Davies MP went head-to-head with economist Vicky Pryce and entrepreneur Alex Mitchell to debate the highly topical issue of Brexit ahead of the EU referendum.

The well-informed panellists did not hold back – from Philip calling Vicky’s pro-EU arguments “drivel” to Tim calling the Treasury “George Osborne’s PR department” and the chancellor “disreputable”.

The be-leavers

Publican Tim gave a spirited argument as to why we should leave the EU, centred around democracy and the need to control our own laws.

“If you look around the world, the successful economies are democratic and have a very high level of democracy that you don’t have in Europe,” he said.

“The European Court judgements, we have no control over and are supreme. The European Commission isn’t elected. It frames the laws and we cannot sack them. It is not democratic. And the 751 Members of European Parliament are too remote to be democratic,” he added.

Eurosceptic Tory MP Philip Davies, who founded the Better Off Out campaign in 2006, focused his argument on how much we could save by leaving the EU.

“We should be ashamed of ourselves that we are handing over £10.2bn this year to be part of a backward looking, inward-facing protection racket set up to prop up inefficient European businesses and French farmers,” he said. “This is not what the UK has ever been about and should not be what the UK should ever be about.”

Stronger in

But remain-ers Vicky and Alex fought back with equal force. Vicky, who is on the board at the Centre for Economics and Business Research, argued that the benefits outweigh the disadvantages of being in the EU.

“There is no doubt at all that having been part of the EU has helped us quite substantially in the past few decades,” she said, explaining that it helps “productivity, innovation and investment”.

“What it also does for the consumer and of course any entrepreneur who has to sell the goods is that it is a very keen market in terms of prices,” she added. “Look what’s been going on as the markets opened up in the airline sector…and the telecoms sector. There has been a huge consumer benefit coming out of this, with a huge increase in the number of possibilities in terms of what can be offered.”

Alex, an entrepreneur and UK President of the G20 Young Entrepreneurs Alliance, conceded that Brussels is “a difficult beast” that “needs change”, but emphasised the benefits of being part of a larger economic union for smaller and fast-growing industries.

He made the point that UK businesses have benefited hugely from EU programmes such as the Horizon 2020, which is providing nearly €80bn of funding for research and development projects over the seven years to 2020.

Trade deal or no deal?

Tim made the point that there is currently no trade deal between the UK and the US and that “it hasn’t done us too badly for the last couple of hundred years”.

“We buy our wine from South America, Africa, New Zealand and Australia. For many years I asked why aren’t we able to get better deals from the French, but we just can’t,” he said, disputing the idea that there are better trade deals to be had in the EU.

And Philip argued that with Britain’s £62bn trade deficit with the EU, it would be easy to secure a free trade agreement – as we have far more to offer the bloc than the likes of Norway.

Vicky came back with a strong riposte to the leave team, who also had concerns about the high levels of immigration coming from EU countries:

“It’s interesting to think we can have an even better deal, with completely free access to the market…Are you telling me we can have everything we want if we leave, but [without] people coming into this country? The chances of achieving that are peanuts.”

She also hit back at Philip’s criticism of the EU being a declining part of the world economy, saying: “If you look at the growth of the countries that we are dependent on and that we would like to be trading more with – and nothing has stopped us so far doing this – or the BRIC countries with the exception of India, they are all in recession. We can’t rely on those parts of the world.”

Rates and rumours

Tim blasted chancellor George Osborne for warning that a Brexit could lead to higher interest rates, labelling him “disreputable”.

“After the 2008 economic crisis, the pound went down, inflation went up for several years and what happened to mortgage rates? They went down,” he said.

“It was highly disreputable for the chancellor to give rise to headlines that say that mortgage rates will go up in an economic crisis, when the last time, they went down.”

Vicky qualified the central bank action by saying that the Bank of England had “very sensibly decided not to raise interest rates in the middle of a recession”.

Interested in taking part in – or supporting – the next Breakfast with Hot Commodity event? Email info@hotcommodity.co.uk.