The Brexit becomes a reality

​Britain votes to leave the EU, now what. Markets naturally went to risk off with the Pound taking the majority of the hit. We now know that the out come is but there is no clarity on how things will play out going forward. The Brexit gamble is over and money was made or lost, now investors need to look at the bigger picture to see what, if anything, has changed.

Source: Yahoo Finance

​Near term, the world will be on high alert. Risk off trades and shifts to US and Yen denominated plays. Also on alert will be the Central banks. One sided bets on currencies could see intervention back on the table. It would be a good excuse for the Bank of Japan to undertake direct market intervention in the markets. The bank of England could try to stabilize the pound if the slide continues next week. The rally in the dollar could even pressure China to take measures to weaken their currency, in this environment the markets would not turn an eye to potential issues across the globe.

Source: Yahoo Finance

​Longer term, things will be more measured. The formal exit from the EU is a two year process and more clarity will come through as time progresses. Trade deals and contracts will not cease to exist in immediately. That being said look ahead there will be changes to the way Britain is looked at in terms of investment and banking. Shares of major banks in the UK are already down about a 3rd on the news, which could be an over-reaction or discounting of the future prospects of the city of London outside the EU. 

It is important to take this information and compile it into the global story and not let it simply shape it. The lead up to the Brexit vote kept other global factors on the back burner and the out vote will no doubt take precedence in the near term. This should not take attention from the fact that other global factors are occurring and could be the the next 'black swan' event to hit the markets. Not because it was a rare unpredictable event, but rather no one was looking.