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The Brexit Vote: The Outcome and What Happens Next

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The Brexit Vote: The Outcome and What Happens Next

What comes after the Brexit Vote?

The Brexit vote that took place on Thursday has left the world in a state of uncertainty. 

Investors have begun raising questions. 

Speculations have been made about whether or not the Federal Reserve should reverse its strong plan and start cutting interest rates.

However, to fully understand the situation, you need to know the Brexit Vote first. 

You should also understand the factors that weighed into the decision and how the decision impacts the global economy.

What is Brexit?

Investopedia defines Brexit as an abbreviation for “British Exit.”

The nickname refers to the British leaving the European Union after the referendum that took place on June 23. 

The referendum asked voters whether or not the United Kingdom should leave or stay within the European Union.

The European Union is a combination of both a political and economic union called a politico-economic union. 

It is made up of 28 members, most of which are located in Europe. 

Below is a diagram showing which countries/states make up the European Union:

j28.3

Those who fought for this move framed the act as one that was necessary. 

They said that the culture, independence, and even the identity of the United Kingdom relied on its exit from the Union. 

You’ve probably heard this same argument in a debate surrounding immigration issues.

On the other side, those who fought for Britain to stay stated that the Union was better for the overall economy of the nation. 

They further argued that concerns about migration, and other issues surrounding the move to exit, were not important enough to equate the consequences to the economy if they left.

Why Did they Leave?

According to the financial times, Britain has not left the EU. 

Despite the fact that many believe otherwise, they state that the referendum that took place was not legally binding. 

They further report that the UK has made no moves to leave.

However, it is stated that the majority of Britons did vote to leave. 

The majority of politicians have even stated that the vote should be honored.

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Why Did the Vote Turnout How It Did?

The truth is that Britain has never been fond of the EU. 

If you have ever visited the United Kingdom, you may have noticed locals referring to the rest of Europe as a separate entity. 

Their displeasure with the Union was reflected in the referendum that took place on June 23, 2016, as demonstrated by the following chart:

j28.4

Britain initially refused to become part of the European Economic Community in 1973, when it was founded.

However, two years after joining a referendum lead to a similar exit by 67% of the vote.

Afterward, an opposition of Europe followed. 

One example of this opposition is found in Britain’s refusal to use the Euro for their currency. 

Another is in their refusal to participate in the Schengen Area open borders agreement made by the Union.

Brexit and the U.S. Economy

A 6% probability that the Fed’s policy rate could potentially fall by .25% by July.

This was shown by interest rate futures.

Interest rates are a popular tool used by money managers and hedge funds to place bets on the policy moves the Fed will make in the future.

The futures showed a 17% probability that the September contracts would feel a rate cut. 

At the same time, the contract coming up in December also finds itself facing a 16% chance of reduction before it comes to pass.

This mirrors the anxiety that investors are feeling over the impact Brexit may have on the U.S. economy.  Many believe that Brexit will undermine the growth momentum of the U.S. economy.

This will cause the Fed to shift policy. 

The Fed raised interest rates in December for the first time in nine years.

Brexit and the Global Economy

James Athey stated that the biggest risk at the moment is the negative impact this will have on the global economy.

He further stated that if growth does not continue at its current speed, it will cause central banks to step in likely and stimulate economies.

James Athey is employed as a money manager for Aberdeen Asset Management. 

The company currently has around $420.9 billion under management.

Highly sensitive the outlook of the Fed’s policy, the yield on a two-year Treasury note fell from .653% on Friday and .779% on Thursday to .594%. 

This percent is barely over the .25-.5 percent Fed Policy rate range. 

Because of this, many investors are not expecting rates to be raised by the Fed any time soon.

Ward McCarthy stated that the rate normalization has currently fallen low on the priority list of the Fed. 

He further states that it will remain low on the list until things settle within the financial market and around the economic consequences caused by the Brexit vote. 

Ward McCarthy is a chief financial economist at Jefferies LLC.

Brexit and England

It is also being said that England might have to cut rates if their growth outlook begins to deteriorate. 

The current yield on the two-year government in the U.K. recently was at .153%. 

This is below the .5% rate of the BOE.

The following chart from the Bank of England shows that the OIS curve suggests rate cuts in the future:

j28.5

What’s the Final Word?

Mark Cabana stated that expectations for any rate cuts from the Fed taking place near-term are “overdone.”

Mark Cabana is a U.S. rates strategist employed at the Bank of America Merrill Lynch located in New York.

Cabana further stated that growth uncertainties mean that the Fed needed to take another look at and reassess its current rate policy. 

He said that it made sense that the Fed would be “more cautious” faced with the current environment. 

Cabana’s bank was able to push back the Fed’s rate increase from September to December of this year.

Todd Colvin stated that the Fed had other options available to them other than cutting rates. 

Todd Colvin is senior vice president for Ambrosino Brothers. 

Ambrosino Brothers is a futures brokerage firm.

Colvin further stated that open swap lines and liquidity measures could found between both the Fed and other central banks could increase. 

Colvin isn’t sure that a rate cut is the answer. 

He stated this was especially true because the Brexit effect would not, at least not right now, be directly under the Fed’s mandate.

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Economy

STUDY: Number of Billionaires Doubles in Last Decade

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Number of Billionaires Doubles in Last Decade
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The number of billionaires has doubled in the past decade and the world’s wealthiest 2,153 people controlled more money than the poorest 4.6 billion combined last year, the charity Oxfam said Monday.

Meanwhile, unpaid or underpaid work by women and girls adds three times more to the world’s economy each year at least $10.8 trillion than the technology industry, the Nairobi-based charity said in its “Time to Care” report.

Women around the world work 12.5 billion hours combined each day without any pay or recognition, while the world’s 22 richest men have more wealth than all the women in Africa.

“It is important for us to underscore that the hidden engine of the economy that we see is really the unpaid care work of women. And that needs to change,” Amitabh Behar, CEO of Oxfam India, told Reuters.

“Our broken economies are lining the pockets of billionaires and big business at the expense of ordinary men and women. No wonder people are starting to question whether billionaires should even exist,” Behar said ahead of the annual World Economic Forum in Davos, where he will represent Oxfam beginning Tuesday.

“Women and girls are among those who benefit least from today’s economic system,” he added.

There will be at least 119 billionaires worth about $500 billion attending Davos this year, according to Bloomberg, with the highest contingents coming from the US, India and Russia.

“The very top of the economic pyramid sees trillions of dollars of wealth in the hands of a very small group of people, predominantly men,” the Oxfam report said.

“Their wealth is already extreme, and our broken economy concentrates more and more wealth into these few hands,” it said.

To highlight the inequality, Behar cited the case of a woman called Buchu Devi in India who spends up to 17 hours a day walking almost two miles to fetch water, cooking, preparing her kids for school and working in a poorly paid job.

“And on the one hand you see the billionaires who are all assembling at Davos with their personal planes, personal jets, super rich lifestyles,” he said.

“This Buchu Devi is not one person. I in India encounter these women on a daily basis, and this is the story across the world. We need to change this, and certainly end this billionaire boom.”

Behar said that to remedy the problem, governments should make sure above all that the rich pay their taxes, which should be used to pay for amenities such as clean water, health care and better schools.

“If you just look around the world, more than 30 countries are seeing protests. People are on the street and what are they saying? That they are not to accept this inequality, they are not going to live with these kind of conditions,” he said.

Source: New York Post
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(c) 2020 2019 Vanguard Media Limited, Nigeria Provided by SyndiGate Media Inc. (Syndigate.info).

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Automobiles

Pump Prices to Edge up After Attack on Iranian General, but Long-Term Effect Unclear

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By Jeff Ostrowski, The Palm Beach Post, Fla.

Motorists soon will see the effects of President Donald Trump’s decision to kill a prominent Iranian general. Whether pump prices rise a little or a lot depends on how quickly international tensions intensify.

Florida gas prices climbed an average of 7 cents a gallon in the past three days and could increase an additional 5 cents, AAA – The Auto Club Group said Monday.

The 7-cent increase was coming even before the U.S. air strike Thursday that killed Iranian Maj. Gen. Qassem Soleimani. That hike was a result of a rise in the price of crude oil in December.

News of the targeted killing of Soleimani sent crude oil surging nearly $2 per barrel on Friday. An increase of that magnitude typically translates to a 5-cent hike at the pump, AAA said.

The U.S. benchmark for crude oil traded Monday just above $63 per barrel, the highest level since May 2019. The price of oil makes up about half the price of a gallon of gas.

“What happens in the Middle East can have a direct impact on Americans’ daily lives by influencing what they pay at the pump,” said AAA spokesman Mark Jenkins. “Crude prices rise when there’s a threat of war, because of concerns over how the conflict could hamper supply and demand.”

Oil analyst Tom Kloza of energy firm OPIS agreed that pump prices in Florida likely will rise about 5 cents a gallon in the coming days.

“Then I have a hunch that things are going to calm down,” Kloza said Monday. “I don’t think we’re looking at $3 gas.”

The national average pump price Sunday was $2.585, while the Florida average was $2.526, AAA said.

Kloza expects only modest increases in part because of the timing of the attack. January is always a slow month for gas consumption in the United States.

There’s also the reality that sanctions leave Iran unable to export oil. Complicating the calculus is Iraq’s response to the U.S. attack. The drone strike on Soleimani took place in Baghdad, and some Iraqi politicians considered the assault an affront to Iraqi sovereignty.

While there’s no Iranian oil supply to be disrupted by a war, Iraq is an important producer.

Trump keenly watches oil prices and realizes that a price spike might erode his support in this year’s presidential election, Kloza said.

At the same time, Kloza added, “This president has proven to be unpredictable.”

Trump’s response has been typically uneven. Delivering an official statement at the Mar-a-Lago Club in Palm Beach, Trump’s tone was measured. He said the targeted killing was designed to pre-empt Soleimani’s planned attacks on American diplomats and soldiers.

“We took action last night to stop a war,” Trump said Friday. “We did not take action to start a war.”

However, over the weekend, Trump took to Twitter to threaten attacks on Iranian cultural sites.

“The United States just spent Two Trillion Dollars on Military Equipment,” Trump wrote Sunday on Twitter. “We are the biggest and by far the BEST in the World! If Iran attacks an American Base, or any American, we will be sending some of that brand new beautiful equipment their way…and without hesitation!”

##IFRAME_1##Iran has vowed vengeance, but military experts say the nation isn’t powerful enough to wage a direct war against the U.S.

“It’s still far too early to know how much of an impact this conflict will have overall on prices at the pump,” AAA’s Jenkins said.

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Economy

Stocks Rally Despite Impeachment News

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Stocks rose on Thursday as investors looked past the news of President Donald Trump’s impeachment as well as mixed U.S. economic data.

The Dow Jones Industrials advanced 53.85 points to begin trading at 28.293.13

The S&P 500 recovered 4.93 points to 3,196.07

The NASDAQ added 19.39 points to Wednesday’s all-time record, at 8,847.12.

The S&P 500 is up nearly 7% since House Speaker Nancy Pelosi launched a formal impeachment inquiry in September.

Cisco Systems was the best-performing Dow component, rising 1.6%. The consumer staples and real estate sectors led the S&P 500 higher, gaining 0.4% each. Micron Technology shares also contributed to Thursday’s move higher. Conagra shares surged more than 14% and were on pace for their biggest one-day gain since Oct. 16, 1989.

Micron shares climbed 3.5% on the back of strong quarterly results. The chipmaker posted earnings per share and revenue that topped analyst expectations.

On the economic data front, weekly jobless claims fell to 234,000 from 252,000 the week before. However, economists expected claims to fall to 225,000.

Meanwhile, the Philadelphia Federal Reserve’s business conditions index fell to 0.3 in December from 10.4 in the previous month. Economists expected the index to slip to 8.

The Democrat-led House of Representatives voted Wednesday to impeach Trump for abuse of power and obstruction of Congress. Trump became only the third president to be charged with high crimes and misdemeanors and will now face a trial in the Republican-controlled Senate.

Prices for the 10-Year U.S. Treasury were lower, raising yields to 1.94% from Wednesday’s 1.93%. Treasury prices and yields move in opposite directions.

Oil prices gained seven cents to $61.00 U.S. a barrel.

Gold prices moved forward $1.80 at $1,480.50 U.S. an ounce. Copyright © 2019 Baystreet.ca Media Corp. All rights reserved.

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