Britain’s decision to leave the European Union, of which it was a member for more than 40 years, has ushered in great volatility and uncertainty in global financial markets.
The British pound fell in value from a high point for the year, just before the referendum vote, to a three-decade low the day after.
The International Monetary Fund expects global GDP to fall about one-half of one percent as a result of this decision.
Some countries, like the U.S., are not expected to be hurt badly by Brexit. But Great Britain could face a recession and Europe also faces great uncertainty in its wake.
The catalyst for this uncertainty is trade agreements. Great Britain will have to establish new trade agreements with the European Union and its other trading partners going forward.
The May labor report, which came out in early June, was surprisingly weak. It showed payroll gains of just 38,000 – well below the trend of recent months.
These monthly reports go haywire from time to time. We will have to wait for future reports to determine whether May’s numbers were an abnormality or part of a larger trend.
The most recent unemployment report contained better news, with a new cycle low of 4.7 percent. This continues a downward trend that we have seen since unemployment hit a peak of 10 percent in 2009.
Consumption is the good news of this quarter. Households are spending money, which is important since consumption accounts for 70 percent of U.S. economic growth.
There has been an enormous rebound in consumption in the second quarter. It will probably drive economic growth in the second quarter to between 2 and 3 percent.
This material is available to advisory and sub-advised clients of City National Rochdale, LLC, a Registered Investment Advisor and a wholly owned subsidiary of City National Bank.
Investment and Insurance Products:
The information presented does not involve the rendering of personalized investment, financial, legal, or tax advice. This presentation is not an offer to buy or sell, or a solicitation of any offer to buy or sell any of the securities mentioned herein.
Certain statements contained herein may constitute projections, forecasts, and other forward-looking statements, which do not reflect actual results and are based primarily upon a hypothetical set of assumptions applied to certain historical financial information. Certain information has been provided by third-party sources, and although believed to be reliable, it has not been independently verified, and its accuracy or completeness cannot be guaranteed.
Any opinions, projections, forecasts, and forward-looking statements presented herein are valid as of the date of this document and are subject to change.
Bonds and bond funds are subject to interest rate risks and will decline in value as interest rates rise.
All investing is subject to risk, including the possible loss of the money you invest. Past performance is no guarantee of future results.