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Brexit vote to Article 50 – What are we seeing in the markets?

Whilst there has been a lot of uncertainty in the last nine months since the Brexit vote on June 23rd 2016, the triggering of Article 50 marks a substantial step towards Britain leaving the EU. But what impact has all this uncertainty had on market conditions and how might markets continue to react as the Brexit process ramps up in the coming months?

We asked a number of our expert analysts at Thomson Reuters to take a look at what impact Brexit has, and will continue to have, on their respective industries.

IPO landscape – 30% fall in the number of deals

Looking at IPOs, Lucille Jones, Analyst, Thomson Reuters Deal Intelligence highlighted: “Twenty-six UK company initial public offerings with a combined value of US$5.0 billion have been recorded since the UK voted to leave the European Union on June 23rd 2016, compared to 37 IPOs with a combined value of US$10.9 billion during the previous comparable period (24 June ‘15-26 March ‘16).  This marks a 54% decline by value and a 30% fall in the number of deals. Initial public offerings from companies based in the United Kingdom total US$1.53 billion so far during 2017, 28% less than the same period in 2016, and the lowest year-to-date total since 2012.”

Year-to-Date UK IPO Volumes

Source: Thomson Reuters Deals Intelligence

Fund Flows – a marked shift in risk aversion

Focusing on aggregated monthly estimated net flows of funds within major Lipper Global Classifications which are registered for sale in the UK, Jake Moeller Head Lipper UKI Research at Thomson Reuters Lipper noted: “Since the Brexit vote there has been a marked shift in risk aversion with estimated net flows clearly showing investors moving away from equities and into short-term money market funds. It’s worth noting that both Money Market GBP and Money Market USD have been dominated by institutional funds. 8 of the bottom 10 sectors for outflows are in equity classifications. 7 of the most popular sectors have been cash or bond classifications.”

Agriculture – UK consumers will likely pay more for imports

Daniel Redo, Head of Agriculture Research at Thomson Reuters examines what the future may hold for the industry: “Much of the talk right now with Brexit and the UK farm sector is focused around the Common Agricultural Policy (CAP) and heavy reliance on EU subsidies and import tariffs. UK farmers are heavily reliant on EU subsidies through this policy and the government has promised to keep them intact until 2020. When the UK leaves the EU, it will have to redefine its current trade commitments to EU countries like Ireland, Netherlands, France and Germany where it imports/exports commodities like meat, dairy and beverages, and/or look elsewhere to partners like the U.S., Australia and New Zealand. Some feel Brexit will be a good opportunity to liberalize the farm sector, which would allow it to compete on the world market and no longer preferentially subsidize large, wealthy landowners. Regardless of what route the UK farm sector takes, under most scenarios UK consumers will likely pay more for imported goods, but so much is still up in the air right now and we’re still waiting for the pieces to fall.”

Precious Metals – robust growth

Ross Strachan, Manager, Precious Metals Demand at Thomson Reuters commented on what Brexit has meant for the industry:“In the precious metals market, the most substantial impact of the Brexit vote has been in the UK. Naturally part of this is due to the impact of political and economic uncertainty leading to purchases of precious metals and especially gold, but also important is the impact through the exchange rate. Namely, the impact of sterling’s 31-year lows against the dollar was that precious metal prices surged, (see, for example, the gold chart below). The net result of this is that gold bar hoarding in the UK was up by an estimated 39% in 2016 compared to the previous year. It is worth noting that the increase in demand before the vote was similar to that thereafter. Scrap supply has also surged since the vote given the price effect and was up 67% year-on-year. While the pace of growth has slowed appreciably since, it is still robust.”

Gold UK Pound Sterling FX Cross Rate

Source: Thomson Reuters Eikon

Oil – a lot hinges on Scottish independence

Shakil Begg Head of Oil Research & Forecasts at Thomson Reuters commented that it may well be Scottish independence, and not Brexit that will have the biggest impact for the UK “The real risk to the upstream sector would come from Scotland gaining independence before the UK actually leaves the European Union,” said Begg. “Most of the UK’s crude oil output is produced from Scotland’s Exclusive Economic Zone (EEZ). The share of Scotland EEZ fields historically has always been more than 80% of total UK output and this is rising as the majority of exploration and development activities continue to take place in Scotland’s EEZ. Scotland’s potential independence would result in the loss of major domestic crude oil sources and thereby tax revenues, a potent negative result of Brexit.”

UK Crude Oil Production

Source: Thomson Reuters Oil Research

What is clear is that the true impact on market conditions will not be known until Britain’s exit from the EU becomes a reality, and Thomson Reuters will of course continue to provide insights from our analysts when future lines in the sand are drawn in the Brexit process.

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Manage the impacts of Brexit and Article 50 in your sector with Thomson Reuters.

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