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The Brexiteers came, won… and then fled the scene, leaving us with a prolonged period in which Brexit will continue to take center stage. Financial markets were caught completely off guard, resulting in huge swings in the days following the 23 June referendum. Risky assets (European equities) and European currencies (sterling) suffered, while government bonds once again acted as the safe haven, driving yields to new all-time lows almost uniformly across the globe.
As sharp as the sell-off was, as surprising was the rebound that followed, with global equities almost erasing all losses within two weeks. We think that this rebound is a too-optimistic interpretation, which is why we have now moved to an underweight in (European) equities. On balance we managed to get through the whole ordeal unscratched, as we decided to put up a short hedge against the British pound just prior to the outcome.
The economy played second fiddle this month. The US economy showed signs of recovery, following the weak first quarter. Europe, on the other hand, weakened ahead of the UK referendum and will remain weak, thanks to the Brexit outcome. As said, the dominating theme was neither the economy, nor company earnings, but politics. UK politics no less...