The UK voted to leave the European Union after more than four decades last week. The result prompted Prime Minister David Cameron to resign and has sent shock waves around the globe. Sterling declined to its lowest level since 1985. The final result saw the “Leave” campaign victorious by 52%, whilst 48% voted to stay, the difference between the win was a million votes.
The result now sets us up for years of bitter divorce talks with the EU. The UK must now count the potential economic and financial cost of an exit that Cameron warned would spark a recession. JPMorgan Chase & Co have stated that the Bank of England (BoE) is likely to cut interest rates to zero by August. The FT have stated that the UK will likely lose its AAA rating on S&P. The BoE Governor, Mark Carney commented that the central bank will not hesitate to take additional measures.
Over the weekend, Labour leader Jeremy Corbyn, said that he will stand in any new leadership election following the resignations of a string of shadow cabinet colleagues. Labour MP’s are expected to discuss a no confidence motion against Corbyn this week. The resignations are in protest of Corbyn’s leadership over the EU Referendum.
George Osborne released a statement early this morning. The statement was designed to calm markets after the surprise Brexit vote triggered turmoil on Friday. The UK Chancellor of the Exchequer Osborne said “it will not be plain sailing in the days ahead, but we are prepared for the unexpected and we are equipped for whatever happens”. Sterling remained lower after the release of Osborne’s statement.
US/GDP will be today’s main focus. The First-quarter GDP reading rose at an annual rate of 0.8%. According to the second estimate from the Commerce Department, this is the weakest performance since the first quarter of 2015. It is expected to be revised down to 0.6% in this third reading. Markets will also keep tabs on day 1 of EU economic sentiment, any mention of the Brexit could cause further volatility for the Pound.
The German CPI figure is forecast to slow slightly. CPI is forecast to continue to remain in positive territory at 0.1%. The final day of the EU economic summit takes place in Sintra, Portugal. Chair of the Federal Reserve, Janet Yellen and ECB President, Mario Draghi will both be attending this event. Any mention of the upcoming EU and UK negotiations will no doubt cause further volatility for the Pound.
The US will release the weekly jobless claims figure in the afternoon, economists’ will be watching to see if the figure can continue its good run of form. The UK current account is released early Thursday morning, with the figure forecast to narrow slightly to -28.1b.
Manufacturing data will dominate Friday’s calendar. There will be data releases from the UK, US and manufacturing hub China. Economists are expecting a drop in Chinese Manufacturing PMI this month. Growth, excluding transportation is due to halve to 0.2% and the figure including transportation is expected to contract by 0.8%, compared with 3.4% growth in April. US ISM Manufacturing PMI is released on Friday afternoon. The reading is forecast to continue in expansion at 51.5. Whilst UK manufacturing is forecast at 50.2. Anything above 50 indicates expansion and any result below this figure indicates contraction.