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Briefing highlights

  • Why Brexit is scaring investors
  • Defining Grexit, Brexit and ... Trexit
  • Global markets on the rise
  • Investors await the Fed
  • Canadian factory sales rise
  • Video: Why rudeness at work is contagious

The morning after

Investors are growing increasingly anxious over the possibility of Britain quitting the European Union, roiling stock, bond and currency markets for days on end.

Markets, of course, have been reacting to the many polls rolling out in advance of the so-called Brexit referendum next week.

“The flight to safety is clearly evident in [foreign exchange] markets, with money moving out of European currencies and into distant havens such as the yen and dollar,” said IG market analyst Joshua Mahony in London.

“What initially looked like an anomaly has turned into the norm, with eight of the last 10 polls coming out in favour of a Brexit,” he added yesterday.

Investors have reason to be concerned. Here’s what Angelo Katsoras, National Bank’s geopolitical associate analyst, says “the day after a Brexit” could look like where markets and the economy are concerned:

1. The British pound and the London stock market would be hit, bond yields would rise and economic growth would falter on a short-term basis.

2. London’s standing as a global financial centre would also suffer. “Measures would be taken to move the clearing functions for euro-zone financial transactions from the U.K. to the euro zone. This has been a long-held goal of the euro zone.”

3. Britain’s attempt to strike a new free-trade deal, unfettered from EU rules, would “run into a wall of hostile EU public opinion angry at having been abandoned … The risk is that overly punishing the U.K., Europe’s second-largest economy, could tip an already economically fragile Europe into a downturn.”

4. After two years, Britain would no longer be protected from discrimination against its companies. “This would force some companies to redirect future investments into the EU in order to maintain market access.”

There could, of course, be severe political consequences as well. Prime Minister David Cameron would have to resign, Mr. Katsoras said, while “the very existence of the United Kingdom would also be at risk.” That, he said, could happen should Scotland want to stay in the EU.

Finally, an EU without Britain would “send an unequivocal global message of the EU’s economic and geopolitical decline,” he added. “The EU would lose its second-biggest economy (after Germany), its most free market-oriented member and its most powerful military force.”

Terms of endearment

Grexit: The possibility of Greece leaving the euro zone. This was the original term that led to ...

Brexit: The possibility of Britain leaving the European Union. This pitched battle is headed for a referendum later this month, the threat of which has been roiling financial markets. And after it’s over ...

Photo illustration

Trexit: A flood of Americans crossing into Canada to flee a Trump presidency, using their hefty discount when they convert their greenbacks to gobble up property and further inflate house prices. (A word I picked up from Reuters, though the definition is mine.)

“Let’s just say that in the event of a Trump victory in November, Vancouver could be looking at a whole new wave of inbound investors, this itme from due south,” BMO Nesbitt Burns chief economist Douglas Porter joked recently in a commentary on the city’s surging housing market.

Having said this, Mr. Porter added yesterday that “I would imagine that there may be a few people who actually do eventually move out of the U.S.”

Manufacturing sales gain

Canada’s manufacturers had a win in April after a couple of down months.

Sales climbed 1 per cent, having contracted in February and March, Statistics Canada said today.

Shipments rose in just 10 of the 21 industries measured, however, accounting for only 55 per cent of sales.

Sales in the petroleum and coal industries rose more than $4-billion, having shed 13 per cent in March.

Video: Why rudeness at work is contagious

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