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What Brexit Worry?

Posted by Joseph Trevisani on Aug 19, 2016 6:22:10 PM

The people who voted for the British exit from the European Union still think it is a good idea. 

U.K. retail sales came in with a much stronger performance than expected  in July the first full month after the separation referendum passed on June 23rd. Despite a good deal of gloomy sentiment from the business and financial sectors, British consumers seem quite sanguine about the immediate prospects for the U.K. economy.  

July retail sales, reported Thursday, rose 1.4 percent, far more than the consensus expectation for a 0.2 percent increase. Sales had fallen 0.9 percent in June.  It was the liveliest consumer month since January.

Annual sales climbed 5.9 percent, a sharp increase over June's 4.1 percent gain, according to data from the Office for National Statistics. The forecast had been for a 4.3 percent increase. It was the second best gain this year surpassed only by May's 6.0 percent rise.

Sterling spiked about 100 points against the dollar on the release and touched 1.3183, its best level since August 5th. It closed on Friday at 1.3083. It also rose 0.6 percent to 86.10 per euro, having reached 87.25 on Aug. 16,  the weakest level in three years. The pound gained against all of its Group-of-10 currency peers. Returns on British sovereign debt, Gilts, rose. 

Inflation and unemployment claims have also shown a U.K. economy performing a good deal better than predicted by most economists, the vast majority who had opposed an exit from the EU and predicted dire consequences for the economy if the vote succeeded. 

This more optimistic view of the economy's reaction to Brexit has yet to impress most analysts and financial market professionals. The Bank of England is still expected to provide further accommodation for the economy this year which would likely cap any medium and long term pound strength. Futures markers pricing in Gilts puts the chance of a rate cut by the end of the year at 33 percent


Joseph Trevisani

Chief Market Strategist

WorldWideMarkets Online Trading

Charts: WWM Alpha Trader




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