Having underestimated the chances of Britain voting to leave the EU it seems traders in early Asian trade are now reacting to the political difficulties of the mechanics of brexit.
What’s driving these new concerns is the delay in the hand over of power from prime minister David Cameron and his successor while the Conservative party chooses a successor. That means there is a consequent delay in Britain triggering Article 50 of the Lisbon Treaty to begin negotiations to leave the EU.
Marc Chandler, Brown Brothers Harriman’s chief foreign exchange strategist, said “formally begins the divorce negotiations? The longer it takes, the more the uncertainty festers”.
Traders hate uncertainty. So this in its own right is a cause for concern.
But the UK political situation and the path to Britain leaving the EU has become more complicated over the weekend with Scotland’s First Minister Nicola Sturgeon telling the BBC that the Scottish parliament, the Holyrood, could try to block Britain leaving the EU.
Jeremy Corbyn, the UK Labor leader, is also under pressure with 11 members of his shadow cabinet resigning over the weekend in protest at his leadership during the referendum.
As a result, and as David Cameron prepares to head an EU leaders summit tomorrow, Forex traders have opened the week in a bearish mood selling Sterling on the uncertainty.
A short time ago the British pound was 1.7% lower than Friday night’s close at 1.3450.
Stocks also appear to be under pressure with Chris Weston, IG’s Melbourne based chief market strategist, tweeting that European equity calls looking bearish straight out the gate””.
European equity calls looking bearish straight out the gate: FTSE 5950 -188, DAX 9335 -222, CAC 4010 -96.
— Chris Weston (@ChrisWeston_IG) June 26, 2016