Brexit One Year On: Political Chaos, Pounded Currency, & Pressured Consumers

It is exactly one year since the UK held the historic referendum vote on EU membership. As Deutsche Bank's Jim Reid notes, whether you think that has passed quickly or not probably depends on if you’re a Sterling FX trader, in which case it’s more than likely been a long year. With today being the anniversary we thought we would see how assets have performed over the past year since the vote...

First and foremost the standout is the currency has been pounded with a huge decline for Sterling versus both the Dollar (-15%) and Euro (-13%). That massive move in the currency has helped to prop up local currency returns however and we’ve seen the FTSE 100 surge an impressive +22% (clearly boosted by big UK exporters) while GBP credit has returned between +8% and +15% and Gilts have returned +7%.

Under the covers of the index - there are big winners and big losers (in local currency terms) also...

However it is the USD hedged returns which are of most interest and this is where we have seen UK assets really underperform.

Gilts have returned -9%, GBP credit -2% to -8% and the FTSE 100 a more benign +4%. Indeed the FTSE 100 has underperformed all other equity markets in our sample in USD terms. The Athex (+32%), Hang Seng (+26%), IBEX (+23%), DAX (+22%), European Banks (+21%) and Nikkei (+20%) are all up over 20% while the S&P 500 is also up an impressive +18%. Credit returns outside of GBP credit are more muted but still flat to +11% generally.

Where we have seen some weakness however is in rates. While bond markets initially rallied in the first week or two post the vote yields have for the most part edged higher ever since. Gilts still standout for their underperformance but Bunds (-3%), BTPs (-3%), Treasuries (0%) and Spanish Bonds (0%) haven’t rewarded investors as one might expect given the huge uncertainty that the result created. Indeed the same can also be said for Gold (-1%). If you exclude currencies, then 33 out of 43 assets in our sample have a positive total return in local currency terms and 26 out of 43 assets in USD terms have a positive total return.

So, as Deutsche's Reid notes, it's been an impressive rally for risk despite an outcome which has seen political Europe enter unknown territory. On that any hopes that the UK political situation would be resolved or at least stabilise essentially came to an end following the snap election earlier this month.

Since the referendum result we have seen Political Chaos:

  • A year of leadership contests within the two main political parties in Britain;
  • Court cases trying to prevent Brexit from happening;
  • Embarrassing leaks demonstrating Prime Minister Theresa May's weak ability to negotiate with the EU.
  • Volatile markets, the decimation of the pound, and preparations for job relocations;
  • A disastrous general election that has put Britain in line for a Brexit deal that looks very similar to what we have now;
  • A  government in disarray;
  • And finally the possibility that Brexit could be reversed ...

The possibility of another election in the future hasn’t necessarily gone away either while the Conservatives and DUP parties are still to come to an agreement. What that means for Brexit talks is also still a bit of an unknown which is why there is a fair bit of focus on the two-day EU summit which kicked off yesterday. This is the first summit since the election for Theresa May and also coincides with Brexit negotiations having kicked off on Monday. Yesterday May proposed a “fair and serious” offer to guarantee the rights of EU citizens living in Britain, telling leaders of the EU that no EU citizens living in Britain lawfully at the time in which Britain leaves the EU would be asked to leave.

And finally, the consumer has been pressured by soaring prices as inflation bites...

"The main financial effect of Brexit has been felt in the pound, though weaker sterling has pushed up inflation and also boosted the stock market. Holidaymakers have probably been the most obvious losers from Brexit so far, though inflation is also gradually ratcheting up the pressure on consumers more broadly," said Laith Khalaf, senior analyst at Hargreaves Lansdown.

Finally, Khalaf sums up the year...

"The performance of capital markets over the last year tells us that the financial effects of Brexit are about as predictable as the British weather."


LetThemEatRand Fri, 06/23/2017 - 19:33 Permalink

The oligarchs are running the clock and waiting for the British population to relent.  Watching the Brexit situation is very similar to watching the oligarchs trying to dethrone Trump.  They just keep chipping away.  The sad part is that they seem to be winning in both Britain and its former colony.   The Rothschilds know a thing or two about how to manipulate a population.

Non-Corporate Entity Fri, 06/23/2017 - 19:39 Permalink

I don't see what the problem is. These are a bunch of unelected freaks that talk a lot. Just tell them to f*ck off already!!!! Trump told them right to their faces, no problems. Theresa May is weak.

smacker Fri, 06/23/2017 - 19:49 Permalink

It may be best for Britain to carry out a Hard Brexit and be damned with the EU rather than spend two years negotiating with Brussels cretins whilst the GBP and other markets go up and down like a see-saw at every scare tactic the BBC create.If the political elites attempt to pull out of Brexit I predict serious trouble on the streets of Britain. 52% of the people voted Brexit and it is not for the Bremainers like HRH Tony Bliar or BBC to subvert the Will of the British people. It is their duty to carry it out or to publicly state that we don't live in a democracy any longer.In this case, we'll need supplies of rope and piano wire.

stilletto2 Fri, 06/23/2017 - 19:52 Permalink

£ dropped because the canadian socialist eu lover running the Bank of England panicked and halved interest rates unnecessarily.Some of the figures in the charts above are not correct. Quotes Berkeley at 2550 when today its 3300 so must be ancient figures from July2016 not 2017. Not good tyler to be doing fake news.

Ross123 Fri, 06/23/2017 - 19:58 Permalink

Brexit hasn't even started yet so how can any changes in the last year be caused by it. Any changes are due to the paper shufflers playing their usual games.The pound going down --great for UK exporters and enables them to readjust over the next few years. All this is going to take time for readjustments ( which are going to be big for some ) but in the long run the UK will be stronger away from the debilitating effects of Brussels.

BeanusCountus brushhog Fri, 06/23/2017 - 20:50 Permalink

Agree. To our friends across the pond, give you all big credit for pulling the Brexit. Stick to your guns and think about your opponent as individual countries. Because they are, with different cultures. France, Italy, Netherlands, Belgium, Portugal, Spain can't hold a candle to Britain on the basis of their economies. Germany the only economic power that gives EU strength. Kind of reminds me of a time not that long ago when a lot of these same players relied on German military strength (AFTER they had surrendered). You have some work to do because of the influence your opponents had over the last few years. Some changes have to be made. Don't be deterred. Britain will be stronger in the long run. And my hunch is that the "alliance" against your defection will unravel at some point in the future. And we will probably have to rescue a few. Better to get on your own early, before the first shot is fired.

In reply to by brushhog

caesium BeanusCountus Mon, 06/26/2017 - 05:31 Permalink

The EU aka the EC aka the EEC aka the ECSC aka the CCF was set up in 1947 when Alcide De Gasperi toured America (sponsored by TIME magaine) seeking debt relief for Italy. In fact, once the US invaded Italy in 1943 it was game on or simply inevitable that something like the EU would emerge from the process.Can you check out of it?The Eagles would beg to differ ...

In reply to by BeanusCountus

Charvo Sat, 06/24/2017 - 04:53 Permalink

Brexit is toast.  These UK folks have shown their intentions bigtime with the recent elections.  Theresa May got slammed.  I wouldn't be shorting the pound here.  The pound got smashed last year after Brexit.  If Brexit is basically reversed, then the pound will rally.

silverer Sat, 06/24/2017 - 07:33 Permalink

Which goes to show that government rule is by consensus of the elitists, not from feedback and representation of the general population. The paralyzed leadership in England has had its ears and eyes closed to the people for so many years, it can't connect and function. Brussels may win this one, because they had planned goals for this whole shit show and only have to try to stick to that playbook and hold their course. The British government is lost in the wilderness of bewilderment, and it is vulnerable. So now we can add brain dysfunction to the list of the long term results of socialism.

Five Star Sat, 06/24/2017 - 09:58 Permalink

The UK gdp growth peaked in 1973 when it joined the EU. It has been decelerating ever since. Brexit was supposed to cause the financial apocalypse. Now it is one year out and the only thing that the naysayers can point to is the fact that the FTSE is having one of its best years literally ever? Oh but in USD it is only up a bit. The horror. Oh and inflation is exactly were it was in 2013.

Funn3r Sun, 06/25/2017 - 09:44 Permalink

Brexit can be summed up in two words. Cluster and Fuck. I am losing money and I don't like it. My company is losing money and doesn't like it either. The pressure is intense from industry to have Brexit canned.