Actual economic effects...

[Spinflight]

FTSE closed on Wednesday at 6138. Closed on Friday at 6138.

Long term borrowing rates have come down as brexit appeared more likely, 10yr ones from 2% down to 1.09% post brexit. Similarly all the European long term borrowing rates rose sharply. Lesson? We are a less risky and more credit worthy outside the EU than in.

One ratings agency did drop our credit worthiness, though oddly the last time they did was out of fear of Eurozone contagion. Seems completely at odds with the long term borrowing rates, which matter quite a great deal given our debts.

The pound dropped, quite significantly. It appears however that there was some 'unusual' activity in the market which forced it down whenever the Leave campaign polled well. To the extent of trying to sell it when there were no buyers.

Some people lost a great deal of money, probably dwarfing the millions contributed to the remain campaign, lets hope it was Goldman Sachs and JP Morgan. :)

[Spinflight]

Their offer to negotiate is an actual effect, which is what I posted.

I oddly missed the USA off the list and calculations. Also as noted in another thread New Zealand has rather generously offered to lend us their best trade negotiators.

Canada + USA + Mexico = NAFTA. For which there has been quite some historic support in both the USA Senate and Congress long before brexit was even a possibility.

[JassyRadlett]

The 250 is probably a better reflection of the UK economy than the 100, and while it's stabilised it's still well down.

[Luckystar1]

Are we having an update please? Thank you!

[STIDW]

Day 7
FTSE 100 6,504.33 +144.27
FTSE 250 16,271.07 +268.17
GBP/USD 1.33


FTSE100 above it’s pre-referendum level of 6,138 but 70% of it’s companies earnings are derived from overseas. FTSE250 is a better indication of companies whose earnings are made in the UK & its not yet recouped. Value of GBP dropped back to the 30 yr low reached on Monday.

Mark Carney: In my view, & I am not pre-judging the views of the other independent MPC members, the economic outlook has deteriorated & some monetary policy easing will likely be required over the summer.

ONS: UK's current account deficit is still running at a near record high

Patrick McLoughlin, Transport Secretary: airport expansion in SE England decision delayed

YouGov poll: Brexit sees consumer confidence crash

Estate Agent Haart: 11% rise in the number of people pulling out of property deals last weekend

My Local: went into administration on Tuesday

[Luckystar1]

Thank you. A mixed bag, I'm quickly becoming very tired of this daily uncertainty. I'm living on my nerves (not good at 8 months pregnant...!)

[STIDW]

On the positive side its a political crises rather than an economic one like 2008. Its out with our control & not worth worrying too much about for now or catastrophizing, particularly as you are pregnant. Good luck!

[lljkk]

Trump announces he will tear up ALL trade deals.
Hillary opposes TTIP, but is keen to support some deals.
I really wouldn't try to bet what the heck Americans will be doing in 12 months time.

[Luckystar1]

Very true STI. That's why I love this thread. Nice and level headed! I've also been seeking solice in Neil Woodford!

[Noofly]

Luckystar If you like Neil Woodford, you should also follow Terry Smith. I've not looked for his reaction since last Friday but certainly before Brexit he wasn't concerned and was a leaver.

[Spinflight]

The ftse 250 is above the level it was at two weeks ago and is still climbing strongly. Too early to say, personally I'd give it a month, but there is nothing to suggest catastrophe, panic or woe.

Brexit was always going to have winners and losers though I'd suggest that the companies that will benefit will take some time to achieve their new equilibrium whereas the losers are likely to see effects on their price rather quickly.

I've seen oil stocks take a month to reach a new level after a successful drill, and others drop to near zero well within a day after a poor one.

Failure is obvious, new opportunities more subtle.

Also gilt yields are still dropping. A year ago a ten year note would cost over 2%. Currently 0.86% and might drop further.

Never in the history of the British government has it been able to borrow money for so little.

[MarkRuffaloCrumble]

I looked at a graph about gilt yields after reading a lot of this stuff. The decline had been steady for 8 years, it looked inevitable that it was going below 1% at some point, not just as some 'sudden drop' due this vote.

[Maz2444466]

Can anyone on here tell me what they think is likely to happen to house prices. I live in London and we want to buy a house...will house prices fall?

[Luckystar1]

Thank you Noofly I will. I've gone from being an ex City solicitor (for which you can read, I've been a SAHM for 2 years) to an economist/financial analyst in the space of a week

[Joysmum]

Thank you spinflight for a more in depth thread.

The immediate period post Brexit was always going to be the most volatile for the markets, based as they are on speculation rather than actual value of companies.

Tbh I'd expected worse in the short term and see the lack of more extreme changes in the past week as positive.

I shall be following this with interest.

The next shocks will be affected by the post Brexit debates or what comes next. A free trade agreement with see minimal impact on businesses and our economy whilst giving opportunity for a greater rate of growth outside of the EU.

[Margrethe]

Just place marking this is one of the better threads!

[Spinflight]

From the treasuries dodgy dossier on immediate brexit effects..

"Therefore, while uncertainty
is assumed to increase by 1 standard deviation in the shock scenario, the increase in
10-year government bond term premium is only assumed to increase by half a standard
deviation, the equivalent of 40 basis points. The severe shock scenario is characterised
by more uncertainty and more upwards pressure on debt dynamics. Therefore, in that
scenario, the term premium is assumed to increase by 1.25 standard deviations,
equivalent to 100 basis points. This remains a cautious assumption. Even a 100 basis
point increase from current levels would leave the UK government debt term premium
over 50 basis points below the level of the term premium during the financial crisis of
2008 and 2009."

In actual fact they have dropped by over 50 basis points.

Also it clearly stated that sterling would drop by between 12 and 15%. Sterling did drop though has recovered and now sits 3.4% lower.

Higher mortgage rates as predicted? Nope, they are on their way down.

The prediction for gdp was between a 3.6 & 6% loss. Difficult to compute this in terms of ftse 100 however I'd guess from historical data that it represents somewhere between 5000 & 5500. The ftse of course is up.

Can anyone find a single forecast in the entire document which was true?

[Luckystar1]

Spin sorry to sound like a duffus, but am I to conclude that the reality is defying the predictions in a positive manner (so far)? Sorry the numbers spin my head a bit!!

[Unescorted]

The FtSE 100 is predominantly made up of companies that have an international marketplace. Therefore when the value of the pound dropped the shares in those companies were much cheaper for people who were buying with dollars / yen / euro etc.

On top of this the share values dropped too - making them much much cheaper for international buyers.

However if you look more deeply and track the British based companies with a predominantly British market footprint the share vaues have dropped significantly... eg Travis Perkins, RBS et al. The FTSE 250 is a better tracker of how the UK sectors are doing.

[Unescorted]

Maz There have been significant downturn on the share price of construction companies in the last week on the assumption that building rates will drop. Additionally some of the big Asian banks have stopped lending for UK property if the retail UK retail market follows suit then yes they will drop - mortgage avaliability is the main driver for house prices not build rates.
It is really too early to say - and the Government can intervene (Help to Buy is an example of this) to further cloud the crystal ball.

[StatisticallyChallenged]

Agree with Unescorted, looking at the FTSE 100 denominated in GBP as a whole doesn't really give much of an indication of what's happening in the UK specifically as you've got the currency movement and you've got some big variations in performance - companies who deal in physical commodities have done fairly well, and those with broad international bases for their business have too. But look at the UK centric companies:

Easyjet - Closed on the 23rd at 1533. Closed today at 1092
Lloyds Banking Group - 72.15 to 54.35
Legal and General - 236 to 191
ITV - 219 to 180
M&S - 366 to 320
RBS - 250 to 169
Persimmon - 2098 to 1540
Taylor Wimpey - 192 to 139

One the flip side Vodafone group is up a little, Astra Zeneca is up considerably (3898 to 4502), British American Tobacco are doing nicely...

[Spinflight]

Luckystar1,

Yes exactly.

The basis points mentioned are hundredths of a percent, so we were paying 1.39% before brexit to borrow money for ten years and the treasury forecast that these interest rates would rise to between 1.79 - 2.39%.

Also that ..

"This remains a cautious assumption."

In actual fact we are now paying 0.86% and still dropping.

Trust me when you have a national debt of £1506 billion the amount you pay in interest per year matters a great deal!

The treasury report which I shalt to heavily criticise want just wrong, it got it the wrong way around by a margin as extreme as their scaremongering.

Also the ftse250 companies are hardly purely domestic. Many foreign firms choose to be listed in London hence the ftse250 is roughly 50% dependant on foreign revenue. Still too early to say whether it will be up or down though, give it another few weeks at least.

[Luckystar1]

Good I need to cling on to every positive bit of information I can get. I'm quite amazed at how bad the media reporting has been on things like this. Information has to be actively sought out, which, for someone like me with little working knowledge of the markets beyond the extreme basic, is difficult!!

[Spinflight]

Worth also thinking about the effect than rising borrowing costs has on the beleaguered and massively indebted southern European economies.

It is when these borrowing costs get out of hand that bailouts are required. Brexit appears to have further imbalanced the EU's already skewed economy. Last time I checked there was almost a trillion euros being hidden in payment systems as of several years ago.

Not that we have caused this, though maybe accelerated the inevitable.

[StatisticallyChallenged]

I totally agree that the Treasury called this wrong on yields - at least in the short run although it remains to be seen what will happen longer term. Question is, why? A quick glance at Euro, US and JPY shows they're all down as we're seeing what looks like a flight to quality (the UK may be kinda crap right now but it's unlikely to start defaulting anytime soon!) as investors avoid the stock market and alternative investments in favour of safe government bonds. Plus the markets are anticipating that interest rates will be cut to try and keep money moving and the BoE will provide stimulus. Whether that will be sustainable, who knows.

I think it's very hard to judge 1 week in really. But, whilst I don't think this is going to be good for the economy it wouldn't be the first time the treasury has produced rather over-simplified analysis. The general public understands (and fears in many cases) high interest rates. Low aren't nearly as well understood. But then, the sort of lows we've been seeing in recent years are not exactly normal and have caused a fair few interest rates models to need ripping up

[Spinflight]

Fair points Stats.

The report I quoted was meant to be highlighting immediate effects though. One week in its a reasonable time period for immediate effects.

The long term report saw no likelihood of a single trade deal in fifteen years..

Instead we have many countries including India and the US asking to begin negotiations.

To what extent could the initial panic and volatility be attributed to the forecasts made by the treasury and leave campaign?