Brexit brings markets disarray, leads to UK premier’s fall

LONDON (ICIS)–Financial markets on Friday morning were in disarray trying to digest the UK’s vote to leave the EU, with crude oil futures posting notable falls and the UK’s prime minister saying he would step down by October.

While optimism that the UK would vote to stay within the EU had grown during preceding days before the referendum, as soon as the first results stated pouring in the prospects of a leave vote rose.

The UK’s public broadcaster BBC announced by 05:00 London time (4:00 GMT) that the Leave camp had scored victory and forecast it would do so with 52% of the vote.

In the end, with an unequal distribution of the vote by regions, the Leave camp achieved 51.9% of the vote, while Remain scored 48.1%.

However, out of the four countries in the UK, Scotland and Northern Ireland voted overwhelmingly to stay within the EU, while England and Wales voted to leave the bloc.

England is the largest country in the UK and therefore the vote there tilted the balance towards leaving.

The first minister of Scotland, Nicola Sturgeon, said on Friday midday London time a second referendum of independence in the country is now back “on the table” again after the first referendum in September 2014 decided Scotland to remain a member of the UK in the belief the country would, at the same time, be a member of the EU.

“Scotland will continue to be an outward looking country… And a second referendum [on independence] is now on the table,” she said, arguing the conditions had dramatically changed since the country decided for a 10-point margin to stick to the UK.

Her UK-wide counterpart, David Cameron, announced earlier on Friday he would resign by October as someone who believed the UK should be outside the EU should be the one leading the negotiations towards that outcome.

Asian markets started the trading day with generalised and notable losses, while crude lost after the first estimations on a Leave vote were issued around $3/bbl.

Right since the opening of trading, European stocks and chemical shares all fell sharply on the news, with France and Germany’s markets being the most affected.

The governor of the Bank of England, Mark Carney, who had issued warnings of how a potential Brexit might affect the economy, said soon after the central bank was ready to act and stabilise the markets, promising £250bn of liquidity if necessary to achieve that end.

By midday in Europe, crude oil futures for delivery in August continued their downward path with losses of around $2.5/bbl compared to their close on 23 June for both the international reference Brent and the US’ West Texas Intermediate (WTI).

Reactions from the chemical industry and markets were in many cases disheartening. Views in the European market were somewhat mixed with some predicting disaster while others looked at the more positive elements such as cheaper exports from the UK.

The UK’s chemical trade group CIA was a strong supporter for the permanence within the EU, and its CEO Steve Elliott said the UK should seek an advantageous trade deal with the EU post-Brexit to keep the chemical industry’s running.

Tony Bastock, who is vice president of the EU chemical trade group Cefic and an UK national and represents as chairman of Contract Chemicals small- and medium-size chemical companies, said he was concerned about the long-term impact Brexit could cause in the country’s firms.

However, he laid much of the blame for the Brexit vote on EU legislators introducing overburdening rules on regulations. “The British people aren’t stupid and they see the legislation coming in. We are just not competitive in Europe,” he said.

The German trade group VCI, which fears a notable negative impact on its business as Germany’s chemicals have the UK as a main trading partner, was more explicit arguing Brexit will cause “severe economic and political damage” to the UK and the EU’s economies.

“I very much deplore that the British voters decided yesterday to leave the EU,” said the VCI president Marijn Dekkers.

A wider, last-minute opinion poll in the petrochemical markets in Europe on Friday morning also left a sombre tone on what the future for chemicals both in the UK and the EU as a whole will bring.

While some sources spoke of Brexit as a “disaster” and forecast the EU could start suffering from a domino effect in which other countries will also vote to leave the bloc, other petrochemical players however showed little concern about the future of the UK’s industry outside the EU.

Chemical major INEOS, with important operations in Scotland and all over the EU, said it will continue doing business as usual, helped by its global footprint.

And INEOS director, Tom Crotty, insisted he did not expect a big impact on its business operations, but added the UK should aim to have an independent energy policy to weather the storm, renewing calls for the development of the shale gas industry in the country.

From Brussels, which has been during years the target of UK euro sceptics for its supposedly endless regulations and interference into domestic affairs, the EU establishment was baffled by the country’s decision to leave and called for a soul-searching exercise, recognising many EU citizens feel disenchanted with the European project.

However, Donald Tusk, president of the European Council which represents the 28 heads of state and government, said the remaining 27 EU members will continue deepening integration and will survive the shockwaves sent by the Brexit vote.

“What doesn’t kill you, makes you stronger,” said Tusk.

Picture source: Imaginechina/REX/Shutterstock