Markets after Brexit
July 5, 2016Over the past couple of weeks we have seen a bit of calm and stability in the financial market, which is way below what market analyst and political figures expected should in case of Brexit. Most analysts were expecting a massive sell in the global market which is supposed to last for a while but we have seen quite a strong rally especially on the stock market. Obviously, this is because of the comments from the bank of England regarding possibility of Quantitative easing and lower interest rate. The Bank also assures the market that there will be more availability of liquidity to banks in other to ensure credit facility.
Unfortunately, despite the fact that we have seen a strong rally on the stock market, especially the FTSE100 traded above 6000 at 6629 last week. Pound continues to sell off massively and currently trading at 20 years low at 1.3100.
Later today, the bank of England will be appearing for the third term since after the Brexit to give some more insights into how the Bank of England intends to calm and prevent a big drop in the market. Without any doubt, the Bank of England is likely to introduce some monetary stimulus measure in their next meeting either in July or August. This could be lower interest rate or pump more money into the economy.
The effect on the pound will probably be more downside lower interest rate will lower the strength of pound. This means we could see GBPUSD trade around 1.2500 levels. Another factor which might weigh on Sterling is the USD strength. If we see more good economic data from the US economy, USD will likely rally and put more downside pressure on Sterling.
Looking at other economies, Overnight, Reserve Bank of Australia left interest rate unchanged and highlighted potential political risk as a result of the undecided president election. The bank is likely to keep interest rate unchanged for a while because of the booming housing market in Australia. also, Retail sales in Australia dropped to 0.2% from 0.3% and trade deficit increased from -1.500Billion to -2.221Billion.
