Why Global Markets Haven’t Been Troubled By Brexit
By Bryan Rich

March 13, 5:00 pm EST

We haven’t talked much about the Brexit drama.

Why?  Because it has been noisy, yet unlikely to create any shock-waves through the global economy.

Even the knee-jerk reaction to the Brexit vote in 2016, didn’t have staying power.  The uncertainty that was quickly manifested in global stocks, was just as quickly reversed.  You can see it in the S&P chart below …

 

Why the sharp reversal?  And why isn’t Brexit a big shock risk?

We had seen a similar movie before: Grexit.  Greece’s EU and EMU partners talked tough about a “my way or the highway” bailout plan, which included harsh austerity. But when push came to shove, the Greek’s stood their ground, resisted the harsh austerity measures that came with the bailout, and it quickly became clear that Europe had more to lose, than did Greece, by the Greeks leaving the EU and (most importantly) leaving the euro. The Greek’s had negotiating leverage.  And they got concessions.
In the case of Brexit, the EU partners started with tough talk too, promising a dark and ugly future for the UK.  But the EU had/has plenty of risk (i.e. others following the lead of Britain … ex. Italy, Spain).  Clearly they both need each other to thrive.  The UK loses if the EU implodes.  The EU loses if the UK implodes.

The populist movement that gave us Grexit, gave us Brexit and then the Trump election, and recently a new government in Italy with an “Italy first” agenda.  It’s a movement of reform.  And reform is now becoming the norm, not the extreme. We’re hoping to see reform in China now too.

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