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September 2016
From The Director

Greetings,

You already know. The whole world knows. In late June, voting on a referendum of global impart, UK decided to leave the EU. Naturally, the initial shock waves of that decision reached around the world, but now that the dust has settled, what exactly does Brexit mean? This month we take a closer look at what it means to activate Article 50 of the Lisbon Treaty and what might lie ahead for businesses in UK and the EU.

Speaking of business, how’s you personal financial position these days? As Brexit proves, you cannot predict the future, but it’s never too early to start planning for it. Our objective is to help you get the best results possible. Please feel free to contact your financial advisor at any time. If you do not currently have an advisor at Select, please reply to this email and one of our senior consultants will contact you promptly.

Best Regards,

Imants Katlaps

Managing Director

Article

AS THE WORLD WATCHES, BRITAIN HEADS FOR THE EXIT

Now that the dust has settled and the Brexit bed has been made, Britain is coming to terms with what it means to sleep in it—or to actually leave the European Union. Calls for a second referendum are dying out. Conservative and Labour party leaders have pledged to stand firm in their commitment to follow the voters’ decision. With a Brexit of some form on the horizon, let’s take a look at the current situation and what may come to pass in the future.

Watch out for falling sterling

One of the most immediate and quantifiable effects of the Brexit decision has been a fall in the value of Britain’s currency. The pound sterling (or GBP) was down about 10% from its value just before the June 23 vote. Most leading economists agree that a disengagement from the rest of Europe reduces the country’s growth prospects, leading investors to shy away from the pound sterling.
 
There is concern is that foreign investors, on whom the country’s economy is highly dependent, will take money out of less liquid assets, such as property. As reported in the The Guardian newspaper, a number of UK property investment funds, including M&G Investments, Aviva Investors and Standard Life Investments,were temporarily suspended in the weeks following the Brexit vote, as investors withdrew funds. Conventional wisdom says continued investor nervousness about property is likely to add downward pressure on the pound...
Market updates
US
At the end of August, global economists began focusing attention on reports coming out of the U.S. Federal Reserve Board of Governors, as speculation grew regarding the possibility of another increase in interest rates. On August 21, Board Vice Chair Stanley Fischer said “We are close to our targets,” when referring to the Fed’s dual mandate to aim for maximum sustainable employment and an inflation rate of 2%...
UK
Two months have passed since the UK voted to leave the EU. Initially, the Brexit vote rocked Britain’s economy as the value of the pound dropped sharply against the U.S. dollar and other currencies. Initial surveys reported plunging consumer and business confidence. In response, on August 4, the Bank of England cut interest rates by a quarter point, to 0.25%, expanded its quantitative easing scheme and introduced new funding for banks. Since then...
Europe
Brexit seems to have had negligible effect on business in the Eurozone so far. The composite IHS Markit survey (which includes manufacturing, services and construction) for August indicated that GDP would continue to grow across the 19-country Eurozone at 0.3% per quarter and at 1.2% for the year. However, conditions vary widely from country to country. France has returned to growth, while its unemployment dropped below 10% for the first time since 2012. In Germany...
Japan
Japan, the world’s third largest economy, continues to struggle with a stronger-than-desired yen and weaker-than- desired trade with China and other markets. The government of Prime Minister Abe continues to pledge that his Abenomics plan will produce results, although, according to the media, skepticism abounds. In mid-August the government reported that exports in July decreased 14% from the previous year, but an even larger drop of nearly 25% in imports managed to produce a trade surplus of 513.5 billion yen (compared to a deficit of 261.4 billion yen in July 2015). Most economists agree that the strong yen has helped to reduce the cost of oil and gas imports, which have fallen 42%, but the general mood remains very cautious. Perhaps anticipating difficulties ahead...
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