INVESTORS are waking to a deeply unpleasant surprise. Despite the closeness of the opinion polls, most people seemed to think that the “status quo bias” would cause Britons to vote for Remain, especially as it was perceived to be in their economic self-interest. A remain vote was virtually priced in.

As soon as the results started to come in, the pound started to plunge. From around $1.50 before the polls closed, the pound dropped to $1.45, then $1.40, and then to $1.34, its lowest level since 1985. It was the worst day for sterling since the currency floated in the early 1970s. The shock was also reflected in equity markets, both within and outside Britain. The Nikkei 225 average in Tokyo has dropped 8%.

When London opened, there were big falls in housebuilding, retailing and banking shares (Barclays, Lloyds and RBS shares dropped 25-30%). The FTSE 100 dropped 500 points or 8% within minutes of the opening; Frankfurt’s DAX index fell 8.6%. S&P futures indicate a 5% decline when the markets open. In a classic “risk-off” move, the US Treasury 10-year bond yield fell a quarter of a point in overnight trading. When UK...Continue reading