Brexit: and the Impact on U.S. Markets

As we have all heard by now, the United Kingdom decided to leave the European Union last Thursday. Since this is so fresh, and never done before, no one really knows how this will play out. There’s a lot of speculation about how this will affect the U.S. economy. So below are a summary of the opinions floating around the nation about our housing market.

TO begin with, Standard & Poor’s is reporting it could downgrade UK sovereign ratings: now at “competitive disadvantage compared with other global financial centers.”

Stateside, financial institutions insisted to downplay the growing worries on Friday.

They said, “We affirm our assessment that the U.K. economy and financial sector remain resilient and are confident that the UK authorities are well-positioned to address the consequences of the referendum outcome,” the G-7 finance ministers and central bank governors stated.

“We recognize that excessive volatility and disorderly movements in exchange rates can have adverse implications for economic and financial stability,” their statement went on.

So despite their words of speculation, how will this actually affect our housing market?

Wells Fargo had this to say about Brexit, “the market action in Treasuries and Gilts continues to evolve in line with the playbook from the 2011 U.S. sovereign downgrade,” said Mike Schumacher who is the head of rate strategy for WF. He continues, “There is one key distinction: this time Gilts are leading the way, Should Gilts lead Treasuries? We think not. We still expect capital to flow out of the U.K., with the U.S. being a very likely destination.”

“In the June 17 edition of the rates explorer, we called for two-0year and 10-year Treasury yield to reach 0.5% and 1.3%, respectively, in the week or two after a leave victory. We stand by these projections /. In the Asia trading session, the two-year reached 0.5%, while the 10-year bottomed at 1.4%.”

The Brexit vote might not be as devastating as the media claims, but it will take several years before we see the repercussions of it. The first thing we will see though is loosening monetary conditions.

Lloyd Blankfein who is the CEO of Goldman Sachs says, “We have a long history of adapting to change, and we will work with the relevant authorities as the terms of the exit become clear.

The other side of the isle thinks much more cynically.

“Isolationist move will cause many wealthy foreigners to consider selling their properties in UK, especially in London as it becomes less attractive place to set up offices to conduct global business, said Lawrence Yun, the National Association of Realtors chief economist. He thinks the demand for U.S. real estate could benefit of global investors start seeing potential in America as open to global business.

Yun continues, “But overall, global economy and job creations could modestly slow down with more frictions in place to do commerce. The British economy will be disrupted and hence we should expect fewer Brits able to buy in the U.S.”

Some people believe that the Brexit vote had to do with the Fed raising interest rates despite a low job report.

Chief Economist for Capital Economics, Paul Ashworth claims, “The sudden stop in employment growth rules out any chance of a rate hike from the Fed and next week’s FOMC meeting, particularly now that the UK vote on whether to leave the European Union appears to be going down to the wire.

“The people of the United Kingdom have spoken and we respect their decision,” said Jacob Lew, who is the U.S. Secretary of the Treasury. “We will work closely with both London and Brussels and our international partners to ensure continued economic stability, security, and prosperity in Europe and beyond.”

Lew concludes, “We continue to monitor developments in financial markets. I have been in regular contract in recent weeks with my counterparts and financial market participants in the UK, EU and globally and we are continuing to consult closely. The UK and other policymakers have the tools necessary to support financial stability, which is key to economic growth”.

So there you have it. That didn’t really give us much of an insight, but very little is known about what is to come. We can only trust a few words of the big institutions policymakers and what they think will happen. It doesn’t mean they will be correct, but it’s the best lead we’ve got.

Brexit was a good thing for the people of the United Kingdom, but only time will tell if it will benefit the global world. 

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