London 15/07/2016 - Opinion pieces are the views of the author: they do not represent the views of FastMarkets
London 15/07/2016 - The dust has yet to settle from the implications of Great Britain deciding to serve notice, following the June 23 referendum, that it will leave the 28-nation European Union (EU) of which it has been a leading, if at times tetchy, member for more than 40 years.
To say that the 'Leave' victory - roughly by 52 percent over the 'Remain' camp's 48 percent - came as a shock is a bit of an understatement. In the hour or so following the UK's polling stations closing, the smart money was on the status quo being maintained.
So, inevitably, there was a 'Frenetic Friday' in the financial markets and within the top tiers of the UK political heiracy. For markets, volatility is almost their lifeblood so some big falls took place in UK share prices and the pound took a battering, mostly against the dollar but also to some extent the euro.
Similar turbulence followed in the immediate days afterward as well against a backdrop of wailing and gnashing of teeth by tear-stained Remainers. But since those first few days, markets have changed. The UK FTSE 100 has risen to 2016 highs and, after hitting 31-year lows near $1.28, sterling has shown signs of basing around $1.32.
Looking at LME metals, the reaction has been similar - there was an initial mini sell-off followed by some solid recoveries that have lifted most to multi-month highs, with copper managing briefly to move back above $5,000 per tonne. In some ways, that is not a surprise - the industrial metals should be reacting more to their own global fundamentals, albeit with a side salad of risk-appetite money checking in and out for the ride.
Base metals are dollar-denominated instruments and are internationally traded so their prices should only logically react and respond to a change in the global economy: whether the UK taking its leave of the EU ushers in a wider economic downturn or recession.
And that is the rub of Brexit - will the doom-mongers and ranks of experts who were predicting this before June 23 be proved right? In another surprise, the UK BoE has opted not to lower interest rates for now, as had been widely anticipated, to help combat the gathering storm (sorry - economic slowdown). No emergency budget, either.
Perhaps it is worth considering the opposite scenario - what would have been the outcome if the UK had decided to stick with the EU? That parallel world is, of course, imaginary. But there were some trends in play.
The UK economy had already been slowing this year, with growth forecasts being pared, and the private housing market was cooling after changes enacted in April relating to the buy-to-let sector. In this alternative reality, that would still have been the case.
And how about the EU if the Remainers had prevailed? Once the post-vote whooping and high-fiving had run its course and with the troublesome Brits now on board, the Project would have resumed and the awkward stuff lurking in the undergrowth would be back out in the open.
Put aside the vanity stuff, such as an EU army or integrating millions of migrants. There is the begging bowl that is Greece and its debt renegotiations, with all the trauma this inflicts on financial markets. Take Italy - where a full-scale banking crisis looms. Hamstrung by EU law on state support, the country may well tell the EU to put its rules on bail-outs up its posterior.
And there is, of course, a seriously underperforming eurozone economy and crippling levels of youth unemployment that show no signs of abating in Spain, Portugal and Greece.
In whatever world that emerged after the Brexit vote - Leave or Remain - those were the constants. The variable is the impact: in other words, the depth and length of a slowdown. That is where the jury is still out.
The UK has form here - after its 1992 exit from the exchange rate mechanism (ERM), there was a sharp but brief period of uncertainty and a fall in economic activity followed by years of continuous GDP growth. That is not to say that this will happen this time, both for the UK and wider global economies. The chances are that Brexit has added a bit more fuel to the fire of economic challenges.
But the stock markets may be telling us something - equities are often perceived as a forward indicator, looking nine or so months ahead. If so, there may be a short, sharp period of pain and then better times to come. For base metals - investors and hedgers alike - current prices may be saying something similar.
What is certain is that on June 23, 2017, it would have been a markedly different world in both the reality of Brexit and the parallel non-Brexit dimension.
(Editing by Mark Shaw)