Many questions are being asked about what will happen post Brexit now that Britain has left the European Union. The most pressing Brexit question is how the exit will take place and how the rest of The EU members will react to the terms and conditions that are applied to the exit. Any delay would unnecessarily create volatility and uncertainty amongst members who are currently struggling under the strict austerity being applied by Brussels and its financial Ministers. If The EU is too accommodating and makes the transition and negotiations to easy this may result in other members wanting to exit. Either way this will cause significant uncertainty in the markets. The high levels of volatility will present trading opportunities for investors.
Italy approaching Banking Crisis
It appears that Italy is quickly approaching a full scale banking crisis that could signal the conclusion of the European Union. Debts and highly leverage Banks with non-performing loans totalling 370 billion Euros are starting to show stress which could trigger a major financial banking crisis.
Since the beginning of 2016 the value of financials have fallen by 50 percent and in the case of one of Italy’s oldest financial institutions ‘Banca Monte dei Paschi di Siena’ has fallen by 75 percent with investors exiting in large numbers. This type of panic easily out weights the similar situation that was seen in the GFC of 2008. Adding to the overall problem the Italian economy is struggling to recover from the last banking crisis and in real terms the economy has contracted by 8 percent since 2008. This could ignite a major melt down of the European Union.
Bank of Japan
The decision to hold rates in negative territory and expand purchases of assets from financial institution to flood the cash market with more liquidity has resulted in a strong rally of the dollar Yen. The Bank of Japan is failing to weaken their currency which is affecting the cost of their exports. It seems all in vein as the government continues to struggle with decades of deflation and increasing budget deficits resulting in strengthening of their currency.
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