While Nevada may have the benefit of distance from the economic and political quake in Europe following Britain’s referendum vote Thursday to leave the European Union, analysts say uncertainty will continue to rock the markets and the Silver State along with them.
On Monday, British markets continued the slide they started Friday, closing with the pound down 3.8 percent at 1.31 to the U.S. dollar, the weakest since 1985.
U.S. markets also continued to slide. The Dow Jones Industrial Average dropped 260 points to close at 17,140.24, a drop of 1.5%, after Friday’s 610 point tumble. The S&P 500 dropped 1.8% and the Nasdaq fell 2.4%.
“If there is anything that markets hate, it is uncertainty,” Dr. Robert L. Ostergard, Jr., University of Nevada, Reno director of graduate studies in the Department of Political Science, wrote in an email on Sunday. “So, if it were clear-cut in terms of what the implications are for Brexit, the markets would probably settle down in a week or two. But given that there is a considerable amount of uncertainty over the vote itself and what it means for Great Britain, this may lend itself to a greater period of uncertainty and more sell offs for the international and British markets.”
So what does that mean to Nevada, where Gov. Brian Sandoval has worked hard on trade agreements with Europe and where the tourism industry welcomes many British visitors?
“For Nevada, the governor’s trade overtures have focused on Great Britain, Ireland, Germany, Poland and Italy,” Ostergard wrote. “Both the British pound and the Euro declined, making American goods more expensive within Britain and the Eurozone. These declines are most likely temporary and part of the initial short-term shock. If the currency declines remain in place, the increased cost of American (and Nevadan) products could slow down progress (in the economic recovery).
“However, the trade and exchanges that the governor has negotiated should not be affected significantly in the long term. The governor and the European governments have an incentive to protect these agreements, as they are generally sound and beneficial to both sides.”
The sound relationship between Nevada and Britain extends to travel.
Despite the British pound’s loss of value compared to the U.S. dollar, which will make travel more expensive for Brits, expect them to carry on with travel plans to the U.S.
Eleven percent of British visitors stop in Nevada, which ranks fourth among the states where Brits travel, according to the 2015 ITA Travel and Tourism Top Markets Report and reported by Las Vegas-based High Tower Advisors and RCG Economics in Friday’s Fact Pack.
“So far, word is that the demand for long-haul travel is still high and the U.S. is such a desirable place to visit that the fall of the pound might not be a drastic impact on travel,” Bethany Drysdale spokeswoman for TravelNevada, said via email about early reports from travel representatives in the United Kingdom.
British travelers are more concerned about safety than affordability, she wrote, citing U.S. Travel Association research during an international travel trade show before the Brexit vote.
“The U.S. is a desirable destination because it’s safe and affordable despite the pound/dollar difference,” the association said.
High Tower Fact Pack had a lot to say on what it called the “Brimpact” on Nevada.
“Odds of another interest rate increase from the Fed have dropped significantly. July is off the table; September also has low odds. There is even mild speculation of a rate cut, which would help the Nevada housing market.
“Oil prices are dropping, which always benefits Nevada tourism.
“British tourists who want a Las Vegas vacation will now have to pay about 10 percent more due to the drop in the value of the pound, so we may be seeing fewer of these.”
While most British tourism is not a major worry, world markets are another story.
“Wall Street reacted as one would expect, with a large selloff over the uncertainty,” UNR’s Ostergard wrote. “Whether Wall Street will get back into the game will depend on how British investors react and how the British government moves forward. The conditions are ripe for a recession to set into Great Britain. The government needs to be sensitive to this and react accordingly. … If it is clear that the cabinet and the EU ministers do not have a clear path forward, British markets could be in turmoil for a long period of time. While the British government is looking for a long, slow transition, it is clear that leaders within the EU are looking for a much more rapid transition.
“The irony in all this is that little will change between how Britain and the EU do business together — Britain will need to adhere to EU regulations or they won’t have access to European markets.”
While the volatility of the market are the most immediate economic concern, Ostergard says the political fallout may have a more far-reaching impact.
“The long-term problem in the Brexit vote is not so much the economic issues for Britain and Europe — these will be negotiated and a realistic basis for trade and investment will continue as it is in both sides’ interests to do so. The economic incentives are there to continue their relationship despite whatever animus the British far-right politicians hold toward Europe. The real danger for Great Britain and Europe is if the nationalist wave that helped drive the Brexit vote is further empowered toward a significant role in the next conservative government,” Ostergard wrote.
Scotland, whose voters want to stay in the EU, are already seeking another vote for independence. Northern Ireland could also seek to break away.
“For Ireland, travel and trade between the Republic of Ireland and Northern Ireland is relatively unimpeded, much like the border between Nevada and California,” Ostergard wrote. “Now, think about having passport controls and security guards on the border between California and Nevada — that is what Ireland and Northern Ireland may be facing. … If the calls for exits from Great Britain are successful, then Great Britain will have much greater problems to face than just their economic adjustment away from the EU. The vote is important because it exposes a greater divide in British society. ...
“If Article 50 of the Lisbon Treaty is invoked, pulling Britain from the EU will be a monumental task that will involve dealing with the Irish problem, the Scottish problem, EU immigrants in Britain, rewriting thousands of regulations, redoing all British passports, and most likely a recession. For the most part, that will mean the end of (former London mayor and leader in the ‘leave’ vote) Boris Johnson’s political career as he will be straddled, unsurprisingly, with a monumental task that will haunt Great Britain for years.”