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Exit after exit

Published Tuesday, June 28th, 2016

Whilst the British Prime Minister meets EU leaders today to discuss the impact of last week’s referendum yesterday the inevitable happened. We are not talking about England’s exit from the Euro 2016 football tournament but the cut in the UK’s credit rating by Standard & Poor and Fitch. The latter was the more lenient as it only downgraded the UK’s sovereign rating by one notch whilst the former by two as both warned of further downgrades especially if there is a referendum on Scottish independence.

The economic turmoil that followed last Thursday’s vote is coupled with political turmoil as the UK’s two biggest parties have been thrown into chaos and they are without de facto leaders. In his resignation speech David Cameron suggested he would want to see the new Prime Minister to be elected by October but his party suggested yesterday that this deadline could be brought forward to early September. The next two-three months will see strong campaigning for the title with the front-runner the ex-London Mayor and one of the fiercest advocates of Brexit, Boris Johnson. The opposition Labour party will vote on a motion of no confidence on party leader Jeremy Corbyn as more than 20 members of the shadow cabinet have resigned in the wake of last week’s referendum.

When the second-biggest economy of Europe is facing a political and economic backlash markets take notice. This was precisely the case yesterday as the flight to safety continued. Gold gained 0.7% yesterday bringing the two-day return to +5.5%. The dollar index has jumped 3.4% since last Thursday. Sterling took another beating yesterday and lost 3.4% yesterday after falling 8% against the dollar on Friday and touched a 31-year low.

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Posted by Tamas Varga

Tamas Varga has been in the oil industry since 1992 and with PVM for 18 years. During his time in the industry he has gathered a range of experience in the oil markets. At PVM Tamas is in charge of data collection and analysis.