Last week things were looking rosé because the latest retail sales and jobs reports were positive. Also, trade winds were calm as Trump commented that he would be open to incremental trade agreements with China as long as the two sides committed to continuing to pursue a major trade deal. Also, interest rates rebounded, quashing fears of a recession signaled by an inverted yield curve.
We love that stocks and yields put in work last week. But they took a little shine away from Brexit. Wait...What is that again? Let’s recap...
I
n 2016, the good people of the U.K. voted to leave the
European Union
. What’s that? It's basically a political and economic set up that allows for the free movement of money, people and trade among its 28 countries. When this happened, the markets weren’t feelin’ it and responded with a 5% drop in the following two days. The actual date of the U.K.’s departure has been delayed several times. The U.K. and the E.U. were trying to strike a deal that would allow for a smooth separation...but that deal hasn’t happened. Now your all caught up.
So, after years of negotiations that haven’t worked, the new Prime Minister, Boris Johnson has said that the U.K. will leave by the October 31st deadline, whether a deal is made or not.
So, what does this mean for investors?
A hard Brexit (the U.K. exiting without a deal) could have political, social and economic implications. Things could get messy. However,
Wall Street nerds aren’t loosing all hope. The U.K. accounts for just over 3% of global
GDP,
less than the
GDP
of California. So, while these challenges could be significant, a slowdown in the U.K. economy won't lead to a global meltdown. Also, the nerds think that the initial shock of the Brexit announcement may have worn off. U.K.
GDP
growth averaged 2.5% in the three years before the Brexit vote. Since then, it has averaged 1.6%, this could mean that the negative economic impact has already showed up and showed out.
Markets don’t like uncertainty and Brexit uncertainty still looms. There is still time for the two sides to come to an agreement on how the U.K. can gracefully bow out. We’ll keep you posted on how it’s all going down.