The biggest reaction has been in sterling, which has fallen 10% overnight against the dollar. There has been a predictable flight to safe haven currencies including the yen and swiss franc.
We won’t know until US markets open but the early indications from the overnight US Treasury bond market and Asian markets is that this is primarily a UK and European issue: yield on US 10Y treasuries has fallen 25bp which is similar to movements seen in February - a fall but not over dramatic.>/p>
European and UK markets are not yet open but we expect European equities to fall approximately 5-10%. German government bonds to rally and peripheral European bond spreads to widen. The Financials sector is likely to be hardest hit.
More fundamentally, it is too early to tell the impact on the UK and European economies because everything depends on the terms of the relationship the UK and Europe negotiate. It will be a long time before we know what leaving the EU means – the possibility of a general election can’t be ruled out, or even an EU constitutional summit to offer the UK alternative terms.
What is more important than where we are at the end of today is where we are in a month or a year’s time.