The United Kingdom shocked the world last week when they voted on Thursday to leave the European Union. The win was such a surprise that even Nigel Farage, the United Kingdom Independence Party (UKIP) leader made remarks Thursday that while it is was likely that the Remain camp would win in this referendum, that he would continue to fight for UK Independence from the EU.
However, when the results came in, it is showed that 51.89% were in favor of leaving over the 48.11% who voted to stay. These results highlighted a divided country as voters in London, Scotland and Northern Ireland largely wanted to remain while voters in Whales and every English region outside of London voted to leave.
So, the United Kingdom made history by being the first country to withdraw from the 28-member union. But they may not be the last. In fact, this is where the real uncertainty lies for going forward. The Express reported that France, the Netherlands, Austria, Finland and Hungary could all be next to pass similar referendums.
So what’s next?
Friday, David Cameron announced that he would resign as Prime Minister later this fall once a new Conservative Leader was elected. In his announcement he said that "I will do everything I can as Prime Minister to steady the ship over the coming weeks and months, but I do not think it would be right for me to try to be the captain that steers our country to its next destination,"
Just as every contract has a termination clause, Article 50 describes how the country will leave the Union. In short, the Prime Minister will determine when to trigger Article 50 which starts a 2-year countdown to severe the relationship with the European Union. Prior to the referendum, Cameron had said that he would immediately trigger Article 50 should the leave camp win. However, in his Friday announcement, he said that “A negotiation with the European Union will need to begin under a new prime minister, and I think it's right that this new prime minister takes the decision about when to trigger Article 50 and start the formal and legal process of leaving the EU.”
This separation from the EU will require the negotiation of new trade and travel laws for the United Kingdom. We’ll cover these details more in coming weeks.
As for the markets, the Major Markets all closed lower last week. While the S&P 500 had a drop over 3.5% on Friday, the week over week change was only a loss of 1.63%. Putting this in greater context, while this was the largest weekly loss since the weekly close of February 5th, we have seen a number of more significant weekly drops throughout early 2016 and 2015. This knocked the S&P 500 back to the level it was at back on March 28th most recently, and where we were at as early as November 7th, 2014.
The British Pound Fell by more than 10% on Friday to hit a 30-year low versus the dollar.
Meanwhile, gold surged on the Brexit News to end the week just shy of 2.75% higher on the week. Silver was close behind as it closed 2.3% higher on the week.
The Brexit uncertainty is far from over as we go into the new week as now Europe must digest what this exit really means for going forward. As these events play out, we’ll continue to cover it in this commentary.