How quickly the world has changed in the space of 12 hours as the opinion pollsters got it wrong again, and the effects of this week are likely to be felt across Europe in the weeks and months ahead.
With Spanish elections this weekend the fall-out from this vote could well reverberate into Spanish politics, and make an already complex situation that much more difficult.
Financial markets bet big this week in the lead up to the closing of the polls last night on the UK remaining in the EU, despite nagging concerns that the vote may well be closer than thought given turnout came out at a highly respectable 72%.
The fact that markets were positioned so wrongly has contributed to this morning’s bloodbath with the pound plunging 10% from a six month high of 1.5000 to a 31 year low of 1.3228 in the space of a few hours.
The FTSE100 plunged from 6,338 to open at 5,800, a decline of around 10%, but given that the market had already rallied 7% in the lead-up to the vote, it’s probably more an indication of how badly caught out markets have been by this turn of events, and we now appear to be gaining a foothold back above 6,000.
Banking and financial stocks across Europe have been hit particularly heavily with Barclays down over 20%, Deutsche Bank down over 15%, while Aviva and Legal and General also sharply lower
House builders have also plunged sharply, as markets digest what all this uncertainty could mean for the UK economy.
Bond yields across the world have also plunged with German bund yields sliding back into negative territory, and placing further pressure on bank margins.
UK gilt yields have also slid sharply by 35 basis points to sit just above 1% at 1.026% as markets speculate that the Bank of England could well cut rates, as the fallout from these events claims its first political scalp as Prime Minister David Cameron resigns. While he has pledged to stay on until October to keep a steady hand on the tiller, while delaying the triggering of article 50 of the Lisbon treaty, attention will inevitably turn to Chancellor George Osborne who could become the next political casualty.
All eyes are now set to be on central bankers around the world with Bank of England governor Mark Carney attempting to settle calm nerves with a pledge to do take whatever additional measures are required to stabilise things as they look to smooth out the volatility in financial markets with eyes also on the Bank of Japan given the sharp plunge in USD/JPY to near levels near 100.00.
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