Big Ben in Westminster, London England UK

The Brexit Effect

All Eyes on Brexit, but Has This Caused Inertia in the Markets?

The impending exit of Britain from the EU in 2019, has so absorbed the minds of the international financial community. Prior to the vote, there were many doomsday predictions, none of which have materialized to date. For instance, before the vote it was predicted that the equity and bond markets would collapse if Britain were to leave. However, post-Brexit, the global bond and equity markets are doing very well. And Britain has not become ostracized, as evidenced by GlaxoSmithKline’s announcement that it intends to invest £275 million to bring up production capacity at three of its manufacturing sites in the UK. Wells Fargo announced that it will make an investment of £300 million to construct a European Headquarters in London.

Other Economic Realities Are Overlooked

In the meantime, more interesting and, in some cases, more perturbing economic realities are being largely ignored during this time of obsession with Brexit. For instance, the world is becoming more and more dependent upon the US economy. This means that any adverse actions taken by the Federal Reserve, or any decline in America’s growth, could cause a domino effect of economic collapse across the globe. China has fallen off the radar screen, yet its debt and slow-down in growth persists. In just the past three months, the renminbi has fallen 3% against the dollar. China continues to provide subsidized credit to its consumers so they can make investments in a system that its government is trying to stimulate and keep on track.

What about the Global Shipping Markets?

The Nikkei has fallen 11.4% this year, yet Hang Seng has seen a 2% gain. In America, the S&P has gone up 6.7% and the FTSE 100 has risen by 6.7%. Brent crude prices began the year at $38 a barrel, falling to $27 in January, up to $53 in the beginning of June, and now evening out to below $45. Freight indicators are also all over the map. The Baltic Dirty Tanker Index is off 47%, Baltic Clean Index off 33%, yet the Baltic Dry Index is up 44%, even if that is compared to perhaps an all-time nadir.