Can you believe it’s only been four days since Britain has officially voted OUT of the EU? Over the past couple of days the U.K. has lost its Prime Minister, companies have lost millions (if not billions) in financial market losses, S&P and Fitch have downgraded the U.K.’s credit ratings, and the sixth season of Game of Thrones has ended. Okay, the last one isn’t exactly Brexit-related but it’s definitely no less regrettable.
So how have major policymakers responded to all the brouhaha that the Brexit vote has caused? Let’s break them down into five themes:
1. Intervention time!
Not one to wait for the dust to settle, the Swiss National Bank (SNB) confirmed that it had actively intervened in the currency markets to stem the franc’s spike following the Brexit vote. Remember that the franc is considered a “safe haven” due to its low-yielding and relatively stable economic status, and it is usually a favorite in times of market uncertainty.
The People’s Bank of China (PBoC) may not have actively sold its local currency but it did drag USD/CNY’s official midpoint 0.9% lower than Friday’s setting. This marked the biggest drop since August 2015 and the lowest since December 2010. Obviously, the move is a response to the dollar’s strength following the Brexit vote. Talk about meaning business!
2. “Keep calm and…just keep calm.”
When uncertainty is the name of the game, it’s the policymakers’ job to restore calm in the markets.
Bank of England (BOE) Governor Mark Carney was one of the first ones to step under the spotlight, saying that his gang has “taken all the necessary steps to prepare for a Brexit.” He also added that the U.K.’s banks are better equipped than they were back in 2008 and that the BOE is allotting 250B GBP in additional funds should the banks need it.
Even Prime Ministers have stepped up to help the cause. Justin Trudeau, together with Finance Minister Bill Morneau and BOC Governor Stephen Poloz assured that Canada is “well-positioned to endure economic uncertainty.” Meanwhile, New Zealand’s John Key is confident that the Brexit won’t provoke an RBNZ rate cut since RBNZ’s Wheeler is busy looking at New Zealand’s economic strength.
Last but definitely not the least is Shinzo Abe and his team who have been busy peppering the newswires with warnings against the yen’s recent strength and overall market volatility. Pip Diddy has the list of their latest sound bites, but they all have the same themes: they’re REALLY unhappy about the recent volatility; they’re watching the markets closely, and the central bank is ready to step in to provide liquidity if needed.
Unfortunately for the forex markets, the key players in the Brexit ruckus are keeping radio silence over the issue and have yet to weigh their opinions on the matter.
Janet Yellen from the Fed and the BOE’s Mark Carney, both of whom were scheduled to conduct a joint panel with Draghi in Portugal tomorrow, have both opted out of the event. Heck, even Mario Draghi is scheduled to ditch his own event early in favor of meeting with the European Council leaders in Brussels! What do these central bankers have on their sleeves anyway?
4. Murder and mayhem
I’m talking about political murder and mayhem, yo! As if crashes in the British pound and the U.K. financial markets aren’t enough, Britain’s policymakers are starring in their own drama/comedy/action series.
David Cameron’s Conservative Party is scrambling to fill up the leadership position and there are already debates on whether or not the upcoming leader should be pro-Brexit. Former London mayor Boris Johnson is one of the contenders, though Home Secretary Theresa and Business Secretary Sajid Javid are giving him a run for his money.
The left-wing Labour Party is not without its drama. Jeremy Corbyn, the party’s leader, has been accused of pulling his punches in campaigning for a Brexit. The loss of confidence (and Corbyn’s firm decision to not step down) have so far resulted in the resignation of at least 23 of the 31 members in his shadow cabinet. Bring out the popcorn, folks!
5. More huddles
David Cameron is currently meeting with European Commission President Jean-Claude Juncker, European Council President Donald Tusk, and 27 of his counterparts in a summit in Brussels. Cameron is expected to explain the whys and the hows of Britain’s decision. He probably should go easy on the dessert.
So what’s next for the Brexit process? Well, German Chancellor Angela Merkel, French President Francois Hollande, and Italian Prime Minister Matteo Renzi have made it clear that they won’t conduct any talks or consultations (formal or informal) until Britain formally invokes Article 50 of the European Treaty. Unfortunately, Cameron has also made it crystal clear that the unfortunate task would be a job for the next Prime Minister.
For now it looks like the policymakers’ hands are tied. If Cameron is to be replaced by the Conservative Party’s annual conference in October, nominations would have to be closed on Thursday and his successor would have to be appointed by September 2. Until then, policymakers will have to do their best in containing uncertainty in the markets.