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11 Economists, Analysts, Market Watchers State Views on Brexit Fallout Ahead
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24/7 Wall St. wanted to offer up some of the key outside views which have been offered by economists, analysts and research shops for the post-Brexit vote. These have been compiled in a quote format, and some have been shortened to make for a more clear presentation and to remove bullet formats.
Comments have been used from BofA Merrill Lynch, S&P, Moody’s, Fitch, Wells Fargo, Jefferies and more. Here are some of the basic Brexit statements made by analysts and economists on the Brexit and what to expect ahead.
One side note to consider here is that all polls should be heavily discounted here and abroad going forward. The pollsters keep getting it wrong, probably because they can only get responses from those who are most passionate about matters or because of how they word questions.
24/7 Wall St. identified several Brexit issues for readers:
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8 American Companies Could Care Less!
Greg McBride, Bankrate.com’s chief financial analyst:
We had a big relief rally in expectation of a ‘stay’ vote, so hold on to your hats because markets now have to reprice for the outcome. Today will be an ugly day in global financial markets. But since nothing will change right away, a market overreaction presents an attractive buying opportunity.
BofA Merrill Lynch’s Europe Economic Weekly called it uncharted waters:
Despite indications from opinion polls, the UK has decided to leave the EU. We think that the UK economy will be the main victim, but the shock for the Euro area and global economy will be significant. UK: We expect the economy to quickly enter recession, the BoE to cut rates 50 basis points in July and restart QE potentially in August.
deVere Group, CEO Nigel Green, spoke out:
Britain is filing for divorce from the EU – it’s a shock event. The Brexit victory is a victory for uncertainty across international financial markets. Brexit-triggered volatility is now only just beginning; we can expect it to potentially last up to two years.
Due the far-reaching impact of this vote, Brexit will inevitably affect the British and the European economies and the wider global financial markets. The decision may have been taken in the UK but it will impact the rest of the world too.
Investors around the world on Friday will pile into safety and prompt a significant shift in global markets from risky assets to safe havens… The world’s currencies, equities and bonds are now on magical mystery tour – at least in the short-term… For instance, the FTSE will tumble, the pound is already in freefall, and investors will be gearing up for probable shifts in the Swiss Franc, to the price of gold, and to monetary policies globally.
There is likely to be two years of varying degrees of market volatility because of the plethora of unknowns. At this stage there are still question marks hanging over so many different areas… Although the impact of Britain leaving the EU will create huge short-term uncertainty across global markets, this is not be the start of an Armageddon-style scenario. The world as we know it will not stop.
Fitch noted that the Brexit result is broadly credit negative for most UK sectors:
The “Leave” result in the UK referendum on membership of the European Union is credit negative for most sectors in the UK, due to weaker medium-term growth and investment prospects, and uncertainty about future trade arrangements.
Jefferies Chief Global Equity Strategist, Sean Darby:
In a very close contest, the ‘Leave’ Campaign won the UK Referendum(Jefferies view was a ‘Remain’). Financial markets are likely to be unsettled by the result in the short-term with both UK and European equities likely to experience sharp sell-offs. Gold is set to do well.
While domestic UK equities such as the FTSE 250 are set to underperform, the depreciation of the sterling will underwrite the international FTSE 100 to some extent. European equities are set to follow the direction of the euro in the short run but the ‘bedrock’ Scandinavian countries such as Sweden with ‘harder currencies” than the euro and sterling ought to hold up better.
The US S&P 500 has low exposure to the UK economy aside from currency translation from auto sales etc. The S&P 500 will naturally sell-off but it is the least impacted from the UK referendum result. In our view EM equity markets will simply suffer from the move from a strong dollar and the pressure it places on their domestic monetary policies.
Moody’s Collin Ellis says the Brexit vote is credit negative for UK sovereign and other rated UK entities:
The UK’s decision to leave the European Union will lead to a prolonged period of uncertainty that will weigh on the country’s economic and financial performance and will be credit negative for the UK sovereign and other rated entities, Moody’s Investors Service said in a report published today.
The immediate financial market reaction has been pronounced, with sterling depreciating sharply and global equity markets falling. Heightened uncertainty during negotiations over new arrangements between the UK and the EU will likely dent investment inflows and consumer and business confidence in the UK, weighing on its growth prospects.
While Moody’s does not expect “Brexit” to have major credit implications for most EU-based issuers, the outcome of the nationwide June 23 referendum could increase the risk of political fragmentation within the EU if popular support for the bloc fades among member states.
Morningstar Investment Management, Dan Kemp:
Investors need to keep cool calm heads amid political and financial uncertainty following the Brexit vote…
S&P Global Market Intelligence, Sam Stovall U.S. Equity Strategist:
Uncertainty, and sensational interviews on financial media, reigns. Warnings will abound that the UK will fall into recession, and questions will be raised about the economic health of the remaining EU countries and the US. I think falling prices will unveil long-term buying opportunities, particularly for mid- and small-cap stocks (that have reduced exposure to international tensions) and higher quality issues due to their lower volatility.
Overall, I would recommend that investors think more about buying than bailing by developing a buy list, such as S&P Dividend Aristocrats with 4- and 5-STARS that fall to the point that they yield 4% or more. I don’t see a recession ensuing. Trade agreements remain in force until Parliament votes to leave the EU. In addition, the Bank of England has pledged £250 billion to support capital markets.
Global demand will not dry up and the U.K. will not be denied access to foreign markets. Granted, the EU will make it tough on the UK to discourage other EU countries from getting the same idea. In the short term, markets will trade on emotion, so make sure you don’t end up becoming your portfolio’s worst enemy. In other words, stay calm and carry on.
Stifel’s Chief Economist, Lindsey Piegza, showed three points outside of what is moving:
What’s next? According to Cameron, the U.K. will now wait until a new Prime Minister is in place before executing exit talks and invoking Article 50 of the Lisbon Treaty.
What is the impact of a Brexit? We are already seeing much of the impact span across financial markets as nervous investors flee from the region.
What does this mean for the Fed? While not an official component of the Fed’s dual mandate, global market stability has been a significant factor in determining the appropriate pathway for monetary policy here at home.
Wells Fargo Equity Strategist, Gina Martin Adams, gave several short-run expectations to watch out for:
Global stocks should sell off, though European stocks are likely to suffer more than U.S. stocks, as has been the pattern with major European scares of the last several years… Bonds are likely to rally, deriving the benefit of flight to quality, and as a result, rate sensitive sectors will likely be the most impacted among equity sectors… The dollar is likely to likewise see flight to quality flows, resulting in pressure on currency-sensitive cyclical sectors, in our view… At the stock level, we screened the S&P 500 for stocks with high sales exposure to Europe, better-than-index price returns since June 1, and increased daily price volatility over the same time period to find components of the index that appear most vulnerable, post “Brexit”… Finally, while downside risk will clearly dominate in the short run, in our view, markets appear to be entering a new volatility regime, centered on political risk.
World Gold Council:
With Britain voting to exit the European Union, we expect to see strong and sustained inflows into the gold market driven by the staggering level of protracted uncertainty that investors now face.
The Bank of England has said that it stands ready to take whatever action is necessary, a mantra that is likely to be repeated by other central banks. In practice, this could mean interest rates move further into negative territory in parts of the world, another positive for gold. Central bank action has already capped the gain in other safe haven assets, with the Swiss National Bank intervening early this morning.
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