Don't make a drama into a crisis

The month of August started on a flat note as equity markets across the globe appeared to react to the weakness in the oil price falling back below $40. This will reignite memories of last August when a selloff in oil, led to weaker credit markets and this combined with the devaluation of the Chinese yuan led to another volatile August. The oil price is coming close to entering back into bear market territory, defined as a fall of 20% from the peak. The price also traded below its 200 day moving average, another bearish signal for traders. The fall in the Dow Jones index marks the first seven day losing streak since August last year. The Japanese yen rallied to a three week high against the US dollar, another sign that speculators are looking for safe havens.

The impact of the Brexit vote continues to haunt equity investors. According to Hargreaves Landsdowne, the out flows from UK equity funds in the past month topped that of the financial crisis in 2008. Retail investors pulled £3.5bn from UK funds in the month of June. This compares with £493m in the October of 2008 when Lehman folded. The FTSE 100 is now up 10% on the year, those poor people who listened to the doomsters may be regretting their decision.

It does make one mad when you read so much about the impact of an out vote in the current press, that is supposed to come from balanced people in positions of authority who the average man in the street looks to for guidance.

Post and pre the Brexit vote we have nothing but what the terrible impact could be from an out vote. Banks have talked about having to move to Europe from the UK due to the withdraw of passporting rights. Already solutions are being offered as to how this may be circumvented.

The Bank of England are expected to cut interest rates this week to stave off a financial recession that in our view they have contributed to the seeds of, from their dire warnings of a Brexit vote. Economies are built on confidence if Central Bankers erode that confidence of course business men are going to take heed and be more cautious.

What would have been far more constructive ahead of the vote was not this Armageddon style fear tactic but a focus on the more positive aspects of the union. Post the vote, leaders should have offered a united front, offering to deal with the situation calming voice, providing stability not uncertainty.  

Posted on August 2, 2016 .