Brexit Impact Not Yet Felt

A review of the week's top global economic and corporate news


Review of the week ended 19 August 2016

  • UK data resilient despite Brexit
  • European Central Bank: Downside risks have clearly increased
  • Fed keeping rate-hike options open
  • US industrial production surges in July

Global equities edged lower this week as the US Federal Reserve kept the door slightly ajar for a rate hike as early as September. The Chicago Board Options Exchange Volatility Index (VIX) was unchanged on the week at 11.8%, while the yield on the 10-year US Treasury note rose to 1.58% from 1.49% a week ago. On the oil front, West Texas Intermediate Crude rallied to $48.00 from $43.83 last Friday. Global Brent crude rose to $50.46 from $43.32.


UK data impress in wake of Brexit vote
Sentiment indicators have turned lower following the late-June vote by the United Kingdom to exit the European Union, but “hard” economic data such as the unemployment rate and retail sales have proven remarkably resilient. This week’s unemployment report showed that the jobless rate held steady at a low 4.9% last month. Better still, July retail sales had their best monthly performance in 14 years, rising 1.4% versus expectations of a 0.2% increase. Warm weather and a weak pound, which encouraged tourism, helped spur sales, according to analysts. Regarding Brexit timing, the government is said to be leaning toward triggering Article 50 of the Lisbon Treaty in April 2017, in advance of German and French elections later in the year.

But Brexit headwinds still have ECB worried
The minutes of the recent ECB meeting show that European central bankers are very concerned about headwinds to economic growth in the eurozone as a result of the UK’s vote to leave the EU. Downside risks have clearly increased and uncertainty has risen, according to the minutes. Expectations are growing for the ECB to add additional monetary stimulus in the months ahead.

Fed keeping options on the table
Members of the Federal Open Market Committee were split on the need for a hike in the federal funds rate soon, but they are keeping their options open, according to the minutes of their July meeting. A rate hike as soon as September can't be ruled out, but a December hike is seen as more likely, observers say.

US industrial production picked up in July
In July, output rose in all sectors — manufacturing, utilities and mining — according to the Fed. The 0.7% monthly advance was the largest since November 2014. A weaker US dollar and firmer commodity prices contributed to the improvement, economists said.

Talking Turkey
Turkey gave the EU an ultimatum this week: Approve visa-free travel within the EU for Turks by October or Turkey will shelve the deal struck with the EU to shelter waves of refugees from the Middle East. Meanwhile, tensions remain high between Turkey and the EU in the wake of last month’s attempted coup as the Turkish government continues to crack down on perceived adversaries while cozying up to Russia’s Putin.

Oil market switches from bear to bull
The market from Brent crude oil has shifted from a bear market to a bull market in just over two weeks. Prices have risen over 20% since August 2, with the latest surge tied to the possibility of an OPEC output cap being negotiated at long last. Brent crude ends the week above $50 for the first time since late June.

Spain hopes to finally form a government
After being politically paralyzed for eight months, Spain looks as though it is somewhat closer to finally cobbling together a government after Mariano Rajoy, caretaker prime minister and leader of the People’s Party, struck a deal with Albert Rivera of the Ciudadanos party. Rajoy will submit himself to a confidence vote later this month, which he will likely lose. However, he would be able to form a minority government if the socialist PSOE party abstains in a second vote, allowing Rajoy to take power.

Russia bolsters military presence along Ukraine border
Russia has massed tens of thousands of troops along its western border in new military installations. According to the Wall Street Journal, US and other allied officials believe Russia’s strategy is to provoke an overreaction from Kiev, one that would help undermine the case in Europe for sanctions against Russia.


Australia blocks takeover on national security grounds
The Australian government has blocked China’s State Grid Corporation and Cheung Kong Infrastructure Holdings from purchasing a majority stake in Ausgrid, the country’s largest electricity distributor, on national security grounds. China fired back, saying blocking the sale is protectionist and that it will impact the willingness of Chinese companies to invest in Australia.

Uber to launch driverless rides in Pittsburgh
Ride-sharing company Uber announced this week that it will roll out a test fleet of driverless Volvo SUVs in Pittsburgh in coming weeks. While the cars will be autonomous, there will be drivers to take control if the technology fails during the pilot phase.


  • Flash readings of the Markit purchasing managers' indices are released globally on Tuesday, 23 August
  • Q2 German gross domestic product is reported on Wednesday, 24 August
  • Central bankers gather in Jackson Hole, Wyoming, on Wednesday, 24 August. US Federal Reserve Chair Janet Yellen addresses the meeting on Friday, 26 August.
  • Q2 UK gross domestic product is reported on Friday, 26 August
  • Q2 US core personal consumption expenditures are released on Friday, 26 August

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Sources: MFS research; The Wall Street Journal; The Wall Street Journal Online; Bloomberg News; Financial Times;;;

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