Dissolution Across the Pond
(Peter Macdiarmid/Getty Images)
The ballots have been cast and counted, and the U.K. is officially leaving the European Union.
In a tight vote of 52 percent to 48 percent that drew more than 70 percent of the U.K.'s registered voters to the polls, the country's citizens decided to throw themselves into unchartered waters and become the first nation to leave the EU.
In the fallout, British Prime Minister David Cameron[1] resigned from his position, politicians in a handful of other EU countries called for their own EU referendums and stocks around the world trembled.
Nigel Green, founder and CEO of deVere Group, called Brexit a "sh ock event" that amounts to "a victory for uncertainty across international financial markets."
Researchers at IHS Global Insight predicted "[m]ajor economic and political uncertainty will be a fact of life for some considerable time."
Chris Gaffney, president of EverBank World Markets, called the announcement a "bombshell."
Analysts generally agree that the Brexit decision is bad news for investors and won't do many favors for the U.K. and broader EU economies in the immediate future. But how concerned should Americans be?
First and foremost, it's important to note that Brexit by itself is not expected to drive America toward its own recession. But the split could generate a series of nasty repercussions that would materially impact the U.S. economy. Much of this will be predicated on how severely Wall Street reacts to the news over the next few days, but the U.K.-EU split will mean different things for different parts of the American economy.
C lick through to read more about how the Brexit vote is expected to trickle back to the U.S.
U.K. Departure Shakes Wall Street[2]
U.K. Departure Shakes Wall Street
The Associated Press
The most immediate and visible Brexit complications developed on trading desks around the world, as Asian and European markets widely plunged before the opening bell rang on Wall Street. Major indexes in the U.K., France, Germany, Japan, Hong Kong and China all posted significant losses to close out the week.
Following that international lead, the Dow Jones Industrial Average[3] plunged more than 500 points – more than 2.8 percent – shortly after trading began Friday morning, while the S&P 500 dropped more than 2.7 percent. Losses moderated throughout the day, but the Dow was still consistently down between 300 and 400 points in midday trading.
"Most investors were positioned against a Brexit, and the markets have reacted quickly and quite dramatically in reversing these positions," Gaffney said Friday. "There are still many outstanding questions regarding this historic vote, and ... investors do not like uncertainty."
Indeed, divorce proceedings are expected to drag out over the next two years, and uncertainty over Cameron's replacement only adds to the fog of confusion.
That's not to say all investments tanked on Friday. Looking for a safe haven to stash their money, many investors turned to gold – pushing prices up nearly 6 percent in midday trading Friday. Bitcoin prices likewise surged as investors snatched up the digital currency.
But on net, there's no way to spin the Brexit vote as anything but an immediate negative for international stock markets. U.S. investors were not spared that fate.
Currency Concerns Outweigh Trade Risks[4]
Currency Concerns Outweigh Trade Risks
Alastair Grant/AP
"If fully followed through, this will be an act of economic self-harm with global ramifications," Samuel Tombs, chief U.K. economist at Pantheon Macroeconomics, said of the Brexit vote in a statement Friday, indicating that the U.K. "is likely to enter recession" if it doesn't work out a "swift deal" to iron out a new commerce and travel relationship with the EU.
But even in the event of a severe British recession in which American exports to the country drop 10 percent, there would only be a 0.05 percent drag on the American economy, according to The PNC Financial Services Group.
The bad news is the British pound sterling[5] fell off a cliff Friday and dropped to levels unseen in decades, which incidentally strengthened the U.S. dollar. Presumptive GOP nominee Donald Trump correctly pointed out Friday that the cheaper pound and stronger dollar will combine to make it much more affordable[6] for American tourists to travel to the U.K. What he left out, though, is that the dollar has for months rankled American exporters who have been treated to less favorable foreign exchange rates.
Dollar strength makes it more difficult for American goods-producers to compete internationally, and the Brexit decision isn't helping their cause.
"Brexit is the biggest global monetary shock since 2008. This could be the tipping point that turns the existing global slowdown of 2016 into a global recession," David Beckworth, a professor at Western Kentucky University and former international economist at the Treasury Department, wrote in a research note Friday. "Brexit is adding further strength to an already overvalued dollar."
There's also a lot of uncertainty about the future of the EU[7] and the future of the U.K. itself. Prominent politicians in the Netherlands, Italy, Denmark and France voiced support for setting up their own referendum votes[8], and the fact that residents of Scotland and Northern Ireland overwhelmingly voted to stay in the EU complicates their relationship with the U.K. at large.
Fed Likely to Push Off Hiking Rates[9]
Fed Likely to Push Off Hiking Rates
Jacquelyn Martin/AP
"Federal Reserve officials are likely to await the fallout from Brexit before raising [interest] rates again," Gus Faucher, deputy chief economist at The PNC Financial Services Group, wrote in a research note Friday. "Additional financial market uncertainty could also cause the Fed to be more cautious."
To be sure, Fed Chair Janet Yellen is likely pleased that her Federal Open Market Committee opted to pass on a rate hike at their June meeting, considering how much international volatility has accompanied this Brexit vote. Yellen indicated in congressional testimony earlier this week that a departure from the EU "could have significant economic repercussions" and that America's central bank was watching the situation closely.
Based on Wall Street's initial reaction to the news, it seems as though those concerns were well-founded. The Fed will have an opportunity to raise rates in July and again in September, but most analysts are looking to later in the year at the earliest, given how much is still up in the air.
"Fed action is likely on hold until the fourth quarter at the earliest," Curt Long, chief economist at the National Association of Federal Credit Unions, said in a statement Friday.
Oil Prices Slip[10]
Oil Prices Slip
(Getty Images)
International Brent crude energy prices were down more than 4 percent in midday trading Friday – and had dropped more than 6 percent earlier in the day. West Texas Intermediate prices – which are generally considered to be a U.S. pricing benchmark – were down by a similar margin.
On the surface, that's good news for consumers, who would benefit from a prolonged period of low energy prices. But it's unclear exactly how long oil will stay low and whether it will be down long enough to trickle out into what consumers pay for at the pump.
There is some concern, though, that there's still an oversupply of oil floating around in the market today and that prices will take a hit when peak travel months fade. This could further depress an energy sector that had managed to rebound significantly from lows seen earlier in the year.
Consumer Sentiment Up in the Air[11]
Consumer Sentiment Up in the Air
Mark Lennihan/AP
By itself, Brexit shouldn't have a huge impact on the U.S. economy. But there is concern that American consumers will become pessimistic after seeing Wall Street tumble and international economies pull back.
"Even for countries with a relatively low trade exposure, heightened volatility and uncertainty are likely to lead to weaker growth through delayed investment and consumer spending and weaker employment," a team of researchers at London-based HSBC Bank wrote in a research note Friday.
The idea here is that globalized companies could get spooked and pull back on hiring new workers and raising pay for existing employees. That, in turn, would make consumers more pessimistic and ultimately drag down domestic consumption. And considering consumer spending accounts for around 70 percent of the country's growth in any given quarter, a contagion effect like this could be a big problem for the economy.
All told, though, it will some time before U.S . analysts can assess exactly how the Brexit vote will impact the domestic economy. Divorce proceedings between the U.K. and EU are expected to take around two years to play out, so no immediate closure is expected.
"The Brexit is going to take months or even years to fully play out and has actually increased risks of a global recession as investors and consumers worry about the future of the EU," Gaffney said Friday.
How significant those risks are is still difficult to say.
References
- ^ David Cameron (www.usnews.com)
- ^ U.K. Departure Shakes Wall Street (www.usnews.com)
- ^ Dow Jones Industrial Average< small> (www.usnews.com)
- ^ Currency Concerns Outweigh Trade Risks (www.usnews.com)
- ^ British pound sterling (www.usnews.com)
- ^ more affordable (www.washingtonpost.com)< /small>
- ^ future of the EU (www.usnews.com)
- ^ referendum votes (www.usnews.com)
- ^ Fed Likely to Push Off Hiking Rates (www.usnews.com)
- ^ Oil Prices Slip (www.usnews.com)
- ^ Consumer Sentiment Up in the Air (www.usnews.com)
Tidak ada komentar:
Posting Komentar