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]

heatst.com/uk/us-uk-trade-bill-in-congress-just-one-week-after-brexit-vote/

"Despite claims that the US would banish Britain to the “back of the queue” if it dared to leave the European Union, Congress is already considering measures to boost trade with the UK.

A bill to lock down current trading arrangements, and fire the starting gun on a bilateral deal, was introduced to the US Senate yesterday.

The United Kingdom Trade Continuity Act mandates the US to keep trading on exactly the same terms after Britain leaves the EU."

[DoinItFine]

Yes, I heard about that.

That will not play well in Europe.

But great for our negotiating position.

[Margrethe]

That's very cheering.

[caroldecker]

spin The US thing means very little. Apart from a very limit number of areas (such as airlines), the US and EU trade under WHO rules. In the absence of any other agreement, when we leave the EU, we will trade with other countries under WHO rules - so no change to the current position anyway.
Obama's claim to be back of the queue was irrelevant anyway, he is gone in January so it will be Trump or Clinton who will decide the focus.

[smallfox1980]

Argh.

The WTO rules ( WHO is health) means that if you have to offer the same trade conditions to all of the 160 countries. The head of the WTO poured cold water on the idea that we will arrange a quick deal with them, it can take years because you've got decide exactly what market access you are going to offer.

The American deal means very little, as I pointed out earlier it has no power to compel the President to do anything ( and he will be leaving soon), and only asks to keep the conditions "as they are" not changing the deal at all.

[lljkk]

Well Golly Gosh Dang There Darnit, Texas wants t' doo bidnes witchall British people. This 'ere Brexit thing is a Golden opportunity, we're mighty happy you decided to declare independence day from high taxes. Think BIG like we do in Texas. We may declare our independence soon, too.

All yuz got to do is relocate yur company to Texas. The greatest State in the Nation.

[applecatchers36]

Singapore has stopped all mortgage agreements for UK property market

[DoinItFine]

Wasn't that one Singapore bank stopped investment mortgages for London properties?

Foreign money inflating London property prices has been a bad thing for the country, so this is very far from making me panic.

[smallfox1980]

Yup it has stopped lending to London buyers, I'm interested to know what you think that means for mortgages being offered outside.of London in future.

sadly what will happen in London is people won't sell. Or a fall in price will mean the cash rich snap them up. In a recession more people will.move here and as demand will out strip supply prices will go back up. Investment from outside probably won't fall either.

[DoinItFine]

Well if that is all true, then it doesn't matter a shite if one bank in Singapore has decided not to lend for investing in London property, does it?

[smallfox1980]

It depends, not lending money for the most valuable properties in the country is a sign that lending for other parts of the country.

Of course there could be a massive London property crash, which again would be very bad too for the rest of the country.

[smallfox1980]

Sorry a sign that lending on other parts of the country will fall.

[youneedtobrushallofthem]

For those following this thread who might not be familiar with some of the concepts, a quick explainer. Apologies to everyone else.

Government borrowing. The govt borrows by selling bonds. These have a face value and an agreed payout. So the govt may sell you a bond with a face value of £100 and an annual payout of £4. Therefore it returns 4%. (Sorry Nigel I know that last bit might have been too tricky for you, just go over there and play with your crayons).
But the bonds are traded on the open market so the price of the bond can change. The payout doesn't change. So if the bond price went up to £200 and was paying out £4 p.a., the buyer of it would then be earning 2%.

This is what's happening with govt bonds at the moment. The price of the bonds is rising, so the interest rate is falling. Why is the price rising? Supply and demand. In times of uncertainty, the safest place to put your money is in govt bonds. You can't just put it in the bank because banks can fail. But the chances of the govt going bust is about as likely as Leicester City winning the Premier League. OK, bad example...

So long term interest rates, as derived from govt borrowing, over the short term, aren't really a reflection of govt creditworthiness, more a reflection of the attitude of the markets to riskier assets.

In very simplistic terms the FTSE 250 is down, bonds are up, because investors are selling corporate shares and buying govt bonds.
We won't get a true picture of how our perceived creditworthiness is affected until this unwinds (imo it will be largely unchanged).

Ratings Agencies: These provide research and opinion on a whole range of financial instruments from sovereign debt, and corporate borrowing to more exotic things like sub-prime mortgage bonds (remember those?).

This is really handy for investors in things like corporate debt, if you don't have the time to do loads of research into a company to know whether their bonds are the right level of risk for your portfolio, you can take the rating agency's view.
It's a lot less relevant for sovereign debt in a major world economy that has it's own central bank, because the info that affects that debt is constantly rammed down your throat widely available. Investors have more than enough data to form a view.

The agencies' recent announcements may well be a true reflection of the prospects for the economy, but in my view the actual credit rating they decide to give us is irrelevant.

Personally if we are looking solely at 'actual economic effects', I'm expecting a steady drip drip of largely bad news at least until it becomes clear whether we are keeping the single market, and for some time after as the uncertainty effect feeds through into the backward-looking data.

I thought Easyjet's immediate profit-warning was interesting. I wonder if they've gambled on the dollar rate and lost. They must buy a hell of a lot of fuel...

[PattyPenguin]

Easyjet spent £1,199,000 on fuel in 2015 (Annual report and accounts 2015) corporate.easyjet.com/~/media/Files/E/Easyjet-Plc-V2/pdf/investors/result-center-investor/annual-report-2015.pdf

That is quite a lot.

[smallfox1980]

I think Easy Jets profit warning will quite likely be down to fuel costs ( as it will be for profits 16-17) and the fact that with lower consumer confidence people will take less short haul breaks in the next 6 months or so.

[GoudyStout]

I wonder if Easyjet might have hedged their fuel at a higher oil price than the current $50 a barrel?

[Mistigri]

Easyjet spent £1,199,000 on fuel in 2015

That's out by a factor of 1000 ... The figure is £1.2 billion.

Easyjet hedges a big chunk of its fuel and forex requirements but it will still have taken a hit. And leisure travel will be among the first discretionary items to be cut in a downturn.

[youneedtobrushallofthem]

Thank Patty but I suspect that number is in thousands? So they spent £1.2billion on fuel. Otherwise the fuel cost per passenger would be about 2 pence! I can't open the link at work as it's classified as 'travel'

I'd have expected them to have some forward cover on the dollar rate, surely? They must be pretty confident on their passenger numbers to issue a warning?

[Mistigri]

Hedging details in the annual report goudy.

It also says that the annual impact of a 1% move in £/$ is £1.5 million.

[Mistigri]

So profits warning has got to be mostly down to passenger numbers/ pricing.

[caroldecker]

They have hedged 3 million metric tonnes of fuel, about $1.5 billion, so 9 months worth. They have also hedged $2.6 bn dollars and €2.3bn Euro.
Without knowing the contracted rates, it is difficult to know the impact of these going forward.

[caroldecker]

Easyjet also gave a profit warning in May - complaining about loss making airlines not closing down causing pressure on revenues, whilst French strikes caused 700 cancellations, which cost them a lot of revenue.

[smallfox1980]

But even you Carol, can't say that a company would issue a second profit warning out of spite.

You realise its not just Easy Jet either.

[GhostofFrankGrimes]

Standard Life shuts Property Fund

www.theguardian.com/business/2016/jul/04/standard-life-shuts-property-fund-post-brexit-withdrawals

[QueenOfNowt]

Why is anyone reading that rag?