The EU Membership Referendum has officially been called. The United Kingdom has left the European Union.
Live results compiled by Bloomberg:
On the Betfair betting exchange, when nobody is no longer willing to offer odds on a certain result winning, that means it has been decided. And that’s it!
Betting exchange odds:
Heading into the office this morning, ‘remain’ was an unbackable short priced favourite and cable was 1000 pips above its most recent swing low. The result of this referendum was meant to be a foregone conclusion.
WRONG!
If you read this blog each morning, you know that I like to look at markets from the viewpoint ‘on which side of the market sits the greatest risk of a repricing’. Of course as always it’s a lot easier in hindsight, but markets had priced in a 100% expectation that the UK would vote to remain in the EU.
So this was my morning thoughts which I Tweeted out at the highs on GBP/USD:
Now of course I wasn’t trading it or recommending anyone trade it. But the short side was the only side that had the risk. Heck, if they had have voted to remain in the EU, cable still was more likely to drop at those prices than it was to continue rallying!
And then…
GBP/USD Daily:
Well yeah. How can you even begin to describe a single day 1700 pip move which prints a monthly high and 3 decade low in the same trading session? You can’t.
This is only the beginning. With the majority in Scotland voting to stay within the EU, a whole new can of worms are opened around whether Scotland will hold a new referendum to once again vote on leaving the United Kingdom and re-join the EU as an independent state. Add Northern Ireland (the other home nation that had a majority remain vote) rejoining the Republic as a unified Ireland and the can just keeps getting bigger.
British Prime Minister David Cameron is expected to resign tomorrow, as it isn’t tenable to see a staunch remain activist negotiating the divorce structure with the EU going forward. Just keep in mind that these negotiations could still take up to two years to complete, and in that time any number of deals and restructures to the EU could, and probably will be, enacted.
Then where does the Bank of England or the European Central Bank come to the party? This isn’t the way that Draghi wanted to see a depreciating euro and BoE Governor Carney has been very outspoken in outlining the risks to the domestic economy and future monetary policy in the lead up.
Finally, what does this do to the US Federal Reserve’s so called ‘monetary policy normalisation process’? The USD is rallying because everything is falling apart relative to it, not because it makes an interest rate hike more likely. A high USD in an already sluggish economy isn’t going to help the Fed’s path toward the next interest rate hike one bit.
The game has changed and this really is only the beginning.
Stay safe.
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