With the United Kingdom voters deciding on Thursday whether to stay or leave the European Union, analysts are predicting bearish markets if Britain exits the EU.
“I obviously don’t know how they will vote, but if it is to leave, there will be liquidity shortages. The issue is mostly banking and equity risk,” said Andrew Shissler, a partner at S&W Trading in Downers Grove, Ill.
“It’s a financial issue,” explains Don Roose of U.S. Commodities. “They think they are adding more to the EU than they are getting.”
If Britain does vote to exit the EU (also known as “Brexit,” for “British exit”), it will likely have negative effects on commodities, stock markets, and banks.
“Commodities could come under pressure as more and more banks move to (manage the) risk,” Shissler explained. Noting that corn and bean markets have “pretty hefty long positions, he observed the vote could create “some nasty trading volatility.”
“With Brexit, the trade doesn’t like uncertainty,” explained Don Roose of U.S. Commodities. “If Britain leaves, the dollar would firm” and make American exports more expensive and less competitive on the global market.
But the true impact of a vote to exit the EU is full of unknowns.
“No state has ever left the EU before, so this is uncharted territory,” said Informa Economics Senior Vice President Jim Wiesemeyer. “The biggest impact would be on currencies and a stronger dollar with less competitive trade. … (A vote to leave the UK) would result in a rally for the U.S. dollar and Japanese yen, while the British pound, could weaken.”
American Farm Bureau Federation Chief Economist Bob Young takes a similar view. “In the short term, the biggest concern is market uncertainty,” Young said. “There is a lot of uncertainty. There are still a lot of things we don’t know.” The global economy could soften. Other countries might follow Britain's lead and also vote to leave the EU.
What if Britain votes to remain in the EU? That outcome would be a “neutral situation,” according to Roose.
Whatever happens, Thursday’s vote should not impact ongoing trade negotiations for the Transatlantic Trade and Investment Partnership between U.S. and the EU or the Trans Pacific Partnership. According to Wiesemeyer, those trade deals depend more on action taken by the U.S. Congress and the outcome of the U.S. presidential election.
United Kingdom voters will cast their ballots Thursday on the Brexit question, with results expected Friday. The latest polls show a close race between the “leave” and “stay” options.