Market turmoil following vote for Brexit

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Markets have plummeted following the British vote to leave the EU.

It’s an old adage that markets hate uncertainty. And, perhaps predictably, investors have reacted this morning to the result of the referendum – and the resignation of Prime Minster David Cameron – with a mass selloff.

Fears of a recession have been stoked as the pound has plummeted 11% against the US dollar. On the week, against the pound, the Brazilian Real fell 7.5%, the Chinese Yuan 4.1%, the Australian dollar 4% and the Euro 2.6%. These are some of the worse falls in recent history: echoing the falls of 1978 and the demise of Lehman Brothers in 2009.

The FTSE 100 has opened with its largest one day loss since 2008, down 7%, with stocks in the financial, oil and property sectors being particularly hit. The stock market appears to have been caught off guard, as this dramatic slough in share prices follows rises earlier in the week.

British holiday makers however appear to have anticipated the recent downturn. With FairFX, a leading travel money provider, reporting seeing a 300% increase in dollar transactions, and a more than a 100% increase in transactions with the Euro, on the week leading up to the referendum.

“Today we are seeing the pound react to the results of the Brexit referendum and this potentially signals longer term volatility for Sterling. Those consumers who did not stock up on their holiday money” said Ian Strafford-Taylor, CEO of FairFX, said: “may find their holiday now becomes more expensive this year, if weak pound-euro rates continue into the summer.”

Mark Carney, the governor of the Bank of England, has joined David Cameron in attempted to ease fears this morning, stressing the stability of the British financial system: “The capital requirements of our largest banks are now 10 times higher than before the crisis,” he said. “The Bank of England has stress tested them against scenarios more severe than the country currently faces.

Nevertheless, Azad Zangana, a senior European economist at Schroders, has warned of the increased risk of a recession; reportedly placing the likelihood around 35-40 per cent.

Following Warren Buffet’s famous maxim of being “fearful when others are greedy and greedy when others are fearful” some will be looking for opportunity in the current crisis.

 

 

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