It is surprising how well markets fared after the shock UK referendum result. Clearly, the exit of the UK from the EU is going to be a protracted process and the economic consequences will only become apparent with time. For now, it is viewed as a UK-specific economic issue, with some European ramifications, rather than a global concern.
If anything, the additional uncertainty, combined with modest rates of growth and little inflationary threat, has served to push government bond yields lower, easing financial conditions and prompting investors to move abnormally high levels of cash into other assets in search of yield and return.
Markets will have more political uncertainty to contend with in the months ahead, in the form of the next EU summit (in September) and referendums in Hungary (on EU migration policy in September) and Italy (on constitutional reform in October). Given the UK referendum result, sensitivities will be high. Then, of course, we have the US presidential election.
Steve Waddington – Insight, a BNY Mellon company