Mark Carney appeared in front of the UK treasury committee on Tuesday in which he delivered the latest financial stability report. Mr Carney continues to come under flack over comments made warning of the dire consequences a leave vote could have on the British economy. In particular, how much was the Bank’s independence compromised by conversations he had with the Chancellor ahead of the vote.
One is starting to get the sense that either the markets are thinking the election of Theresa May has somewhat changed the probabilities of a complete Brexit, despite the referendum and her public statements, or the prophets of doom are being discounted.
The FTSE 100 entered bull market territory, defined as a 20% recovery from the low point, (reached in February), on Monday post the confirmation of Theresa May as the incoming prime minister. The pound continues to recover from the lows of last week, and the US stock market has hit an all-time high. House and property stocks that were battered in the days post the vote continue to recover after their falls. It is so easy to talk oneself into a panic when the papers and persons in positions of authority appear to play on ordinary citizen fears.
Further evidence of calm after the storm, Siemens, the giant German industrial conglomerate, have now backed away from comments post Brexit that the leave vote would put a freeze on investment, promising to press ahead with original plans. British Land a few days ago announced the sale of its flagship Debenhams store for £400m, a deal that would have been arranged ahead of Brexit and completed post it. They have also announced further deals post the Brexit vote. The Telegraph reported that the Chinese may be open to a trade deal with the UK, as China is becoming frustrated with the EU. Dealing with one country is far easier than 27. Time will tell what the full impact of Brexit will be, if it happens, but after a few days of panic perhaps a sense of calm and reality is taking over and a realisation that with change comes opportunities as well as risks.
On Thursday the Bank of England are expected to cut rates in response to the Brexit vote. The Financial Times reported that the Bank may follow the European Central Banks lead in announcing the purchase of corporate bonds. One has to question what either of these moves may do in reality, moving interest rates down from 0.5% to 0.25% is likely to have little impact on the average borrower or saver for that matter. It would seem more prudent to wait, see what the real impact is in the coming months and then if necessary look for additional measures. Our sense is we may cut and Mr McCafferty could well be popping his head out of the parapet once again in the coming months suggesting the decision should be reversed.