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Keep calm and carry on

Published Wednesday, June 29th, 2016

This old British adage rang true yesterday across global stock markets which displayed signs of recovering from the Brexit hangover as investors tentatively dipped their toes back into risk assets. The fierce two-day selloff in the aftermath of last week’s vote gave way to a relief rally as participants went in search for bargains with banking stocks in particular enjoying a reprieve and helping European equity gauges reverse a large a chunk of Monday’s losses.

The improving mood was a major boon for the beleaguered pound as it lifted itself off a 31-year trough against the dollar with a 0.9% gain. As impressive as this change in sentiment was, many have cautioned that the backdrop to what is the first post-referendum bounce remains clouded by uncertainty and therefore the outlook is still very much skewed to the downside. Let us remind ourselves that the UK is in political limbo with the Prime Minister resigning in the wake of Brexit and the opposition party leader refusing to stand down despite losing a vote confidence.

Doubts over the UK political leadership came as the outgoing British PM David Cameron received a frosty reception in Brussels where he met with EU leaders to discuss the fallout from last week’s shock vote. European policymakers urged the UK to give formal notice of its intent to leave the bloc and warned that negotiations on its separation cannot begin until it initiates the withdrawal process. These calls were echoed by Germany’s Angela Merkel who quashed pre-referendum promises made by the Leave campaign that it would secure access to the single market while limiting immigration. The fact that David Cameron has claimed that he will leave the job of triggering the formal two-year procedure for withdrawing from the EU to his replacement sets the scene for prolonged period of uncertainty.

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Posted by Stephen Brennock

Stephen Brennock joined PVM in 2013 after having worked as a project manager for a business development firm. He graduated with a degree in Business Management in 2007.