Publication date: 5 August 2016 | Covering: July 2016
Monthly Briefing
- Brexit aftermath: UK chooses Theresa May as new PM July 13; negotiations with EU not yet started; pound near 31-year lows
- FRESH: Fed July 26–27 holds 0.25–0.50% (9 days ago); cites continuing Brexit uncertainty; December increasingly likely for hike
- FRESH: Bank of England cuts to 0.25% August 4 (1 day ago); first cut since 2009; full stimulus package announced
- Turkey attempted military coup July 15–16: Erdogan survives; mass purges of military and judiciary follow
- US June payrolls 287,000 strong recovery after May’s 38,000; labour market not derailed by Brexit
- BOJ easing; Jamaica tourism record arrivals; NHT J$6.5 million ceiling; rates 0, 2, 4 per cent
Brexit Aftermath: Britain Picks a New Prime Minister
The United Kingdom’s vote to leave the European Union on 23 June — the defining event covered in last month’s edition — continued to reverberate through July. Prime Minister David Cameron, who had campaigned for Remain and staked his premiership on the outcome, resigned immediately after the result and was succeeded on 13 July by Home Secretary Theresa May, who had been a nominal Remain supporter but presented herself as committed to honouring the referendum result. May’s appointment of prominent Leave campaigners Boris Johnson, David Davis, and Liam Fox to lead Brexit-related cabinet positions signalled that the government was committed to a significant departure from the EU’s single market and customs union frameworks. “Brexit means Brexit” became May’s defining formulation, though the precise content of that Brexit remained deeply ambiguous through July. The pound remained near its lowest level in 31 years, trading around US$1.30 to US$1.32, having fallen from US$1.48 before the vote. The immediate post-vote recession feared by many forecasters had not materialised, with early data — some PMI readings, retail sales — coming in better than worst-case projections, though the full economic consequences would only emerge over the following quarters.
Fed Holds; Bank of England Acts
The Federal Reserve held the federal funds rate at 0.25 to 0.50 per cent at its 26 to 27 July meeting, as universally expected. The July statement noted that “near-term risks to the economic outlook have diminished” following the Brexit vote, suggesting the Fed judged the immediate spillovers to the US economy to be manageable. Labour market data had recovered strongly: after the alarming 38,000 payrolls figure in May, June showed a rebound to 287,000, well above expectations and providing reassurance that the US employment recovery remained intact. December emerged as the dominant expectation for the next rate increase, with the September meeting seen as unlikely given the proximity of the November US presidential election and the ongoing Brexit uncertainty. One day after this edition’s publication date, the Bank of England confirmed the stimulus package that markets had been expecting: a rate cut from 0.50 per cent to 0.25 per cent — the first cut since March 2009 — combined with £60 billion in additional gilt purchases, £10 billion in corporate bond purchases, and a new Term Funding Scheme. The scale of the BoE’s response reflected its serious concern about the economic impact of Brexit uncertainty.
Turkey Coup Attempt: A Geopolitical Shock
The attempted military coup in Turkey on the night of 15 to 16 July was among the most dramatic political events of the year. A faction within the Turkish armed forces deployed aircraft, tanks, and troops in Ankara and Istanbul, seizing key bridges and broadcasting a statement claiming control of the government. President Recep Tayyip Erdogan, who was on holiday, delivered a message via video call urging citizens to take to the streets in resistance, and the coup collapsed within hours as loyal military units and civilian crowds confronted the coup plotters. The aftermath was swift and sweeping: Erdogan declared a state of emergency, and within days more than 50,000 soldiers, police officers, judges, teachers, and civil servants had been detained, suspended, or dismissed. The episode raised serious concerns about the rule of law, judicial independence, and Turkey’s democratic trajectory. For global markets, the coup attempt caused a brief but sharp spike in risk aversion that eased as the failure of the coup became clear. Turkey’s importance as a NATO member and bridge between Europe and the Middle East made the political instability a matter of continued strategic concern.
Jamaica Mortgage Market in July
Jamaica’s mortgage market absorbed the summer’s global volatility with relative equanimity. The BOJ’s domestic easing stance continued to provide a supportive lending environment, and Jamaica’s tourism sector was performing at record levels, providing a positive underpinning for household incomes in the hotel corridor communities. The NHT’s J$6.5 million individual ceiling and tiered rates of 0, 2, and 4 per cent continued to support the affordable housing finance market. The peak summer diaspora engagement period brought renewed property interest from overseas-based Jamaicans seeking to invest in residential real estate. Commercial banks were cautiously managing their mortgage books in the context of the continuing — if easing — tight fiscal and monetary environment.
Looking Ahead
The Bank of England’s response to Brexit has now been delivered, and attention will turn to whether the data confirm the slowdown the Bank expects or whether the initial resilience continues. Jackson Hole on 26 August is the next major Fed communication event: Yellen’s keynote will be scrutinised for signals about the September meeting. The US presidential election campaign is intensifying, with the Democratic and Republican conventions having concluded in July. For Jamaica, the continuation of record tourism arrivals and strong remittances provides the positive fundamental backdrop for the property market, while the approaching peak of hurricane season through August and September is the principal weather-related risk to monitor.
Mortgage & Housing Finance Disclaimer: This publication is for general information only and does not constitute mortgage, financial, legal or investment advice. Mortgage products, lending criteria, interest rates and borrowing costs vary between lenders and may change without notice. Readers should obtain independent advice from a qualified mortgage adviser, financial adviser or legal professional before making financial or property decisions.
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