Markets and currency enter Brexit uncertainty with no course charted ahead


Russell Bruce unravels what is going on behind currency falls and market fluctuations, post-Brexit

The stock market is higher now than before the EU referendum, so everything must be OK then? Well no. The FTSE 100 is mainly made up of international trading companies. The big international miners, gold companies, oil companies and others like the Anglo Swedish pharmaceutical AstraZeneca use the dollar as their local currency.

On June 22 a dollar could be bought for 68p. Today the same dollar costs just over 77p. Oil and commodities are priced in dollars, so it makes sense these companies use the dollar for their financial accounts.

On Friday June 24 the cost of these stocks rose because they had become more expensive to buy in sterling, encouraging investors to buy more and lessen their exposure to sterling in the wake of the out vote. Far from being a vote of confidence in the UK economy it was movement caused by the overnight devaluation of sterling and a rush for the ‘poundland’ exit.

UnknownThe pound has also fallen against the Euro. Unilever, perhaps once thought the most ‘British’ of companies with its traditional large presence in former colonies, has become a major diversified global company with hundreds of global brands. Unilever reports in Euros. For most of 2016 Unilever shares traded at between £28 and £32. After the vote and sterling’s slide against the Euro, Unilever shares have risen to over £36.

Shell and BP shares rose significantly against a background of 18 months heavy falls, in line with the market price of oil. Both companies report in dollars. BP shares trading at around £3.50 for most of the year now cost around £4.50. Royal Dutch Shell shares had fallen as low as £12.60 earlier in the year but are now trading at around £21 – a level they have not reached since before the rapid fall in the oil price back in 2014.


The rise in the share value of these companies has next to nothing to do with their trading prospects but a stampede to get out of sterling. BP and Shell pay substantial dividends with a dividend yield of around 8% just days ago. With the higher price the dividend yield has dropped to 6% for both oil majors. Quite an attraction if you can risk volatility in the value of your shares. The dividend has another wee bonus. It is declared in dollars so when the dividend is paid it is converted to sterling – more pounds for those dollars.

The last thing I am going to do in this article is pretend to predict future prospects for the FTSE 100 or sterling exchange rates. Until somebody has a plan, any plan, for the UK’s relationship with the EU and a widely understood timetable for progress, markets will be jittery and volatile. Seasoned investors on the other hand love volatility shifting investments and currencies at the click of a mouse when others panic.

What does this mean for Scotland as the Scottish government explores the means by which we could remain in the EU as the Scottish electorate decisively voted for.

The route to retaining EU membership has not yet crystalised. Nicola Sturgeon brought back from Brussels useful indicators of EU willingness to listen to Scotland. Even the dogs have scratched out a possible timetable for how events and Article 50 will unfold. This is a time to be careful and canny, waiting to gauge the time to make a decisive move.


Ms Sturgeon has secured a mandate with the backing of all but one party in the Scottish Parliament. That is an important consensus to hold onto as realistic options become clear. Independence supporters have to be patient which does not prevent them making their case whilst recognising that not a few of their number are opposed to EU membership.

Nicola Sturgeon: next steps?
Nicola Sturgeon: next steps?

Steering such a path will not be easy for the Scottish government and the SNP. It is vital to remember that the majority of SNP voters today have only chosen to support the SNP in recent times because they are a competent government led by senior politicians at ease in the world of international relations and highly respected furth of Scotland.

The Tory party in Scotland has made its choice. It is the UK Union above the European Union. Both may and probably are impossible to hold on to but there is a commitment to explore a twin route that has won backing and respect.

Scott Macnab in the Scotsman is demanding the Scottish financial sector gets some clarity. There are no instant answers for anybody. The Scottish financial sector will react as every other financial sector does around the world, based on current known events and calculations of probabilities.

We know the intention of the Scottish government is to find a means of Scotland remaining in the EU, as we voted. Nobody has any idea what the intention of the UK government is as it swirls in a vortex of political incompetence and opportunism.


It will be two months before there is a new UK PM replacing the present Cameron caretaker administration but do not expect clarity to emerge from a decision of Tory party members. As for Labour’s internal convulsions, they have made themselves an irrelevance in the search for answers, swimming in the clarity of mud at the bottom of the Thames.

There is always a silver lining for some sectors. The fall in sterling is good for tourism and exports if only the latter was a strong part of the UK economy. Scotland will benefit on both accounts. But inflation will rise with one estimate from JP Morgan Asset Management to around 3-4%. Inflation will add to pressure on government budgets as will the predicted slowdown on economic growth forecasts. The Scottish government has a plan to steer us through these difficult times and challenges. That is more than we are hearing from other quarters. Clarity of purpose is a sound start. The Brexiters wanted control. What they have achieved is paralysis with a debate in England continuing to pursue a wish list 27 other countries will not put on the table.

I was going to mention how trading in government debt is making money for some, even on bonds with a negative yield. Perhaps another day.

The FTSE is down 100 points, Chilcot has told us little we did not know or suspect, and the Tory press is getting stuck in to Andrea Leadsom who will not be leading the Tories soon. Some things never change.