20160701-法国巴黎银行-ECONOMIC_AND_MARKET_OUTLOOK_UK_EXIT_VOTE_ONE_WEEK_INTO_BREXIT_17页_316kb

UK Exit Vote: One Week Into Brexit Summary

Core Content

This document provides an economic and market outlook one week after the UK's decision to leave the European Union (Brexit), focusing on the implications for the UK, Eurozone, US, and global markets.

Main Points

1. UK Economic Impact

• Growth Setback: The UK economy is expected to suffer a growth setback, with GDP projected to be 2% lower than the baseline by 2018.
• Investment and Hiring: Uncertainty from Brexit is expected to hurt investment and reduce hiring, which will have knock-on effects on consumer spending.
• Recession Risk: A recession is a risk in late 2016-early 2017 due to the economic disruption.
• Inflation Expectations: The sharp fall in the British pound is expected to push inflation up, with price growth peaking near 3% in late 2017/early 2018.
• Monetary Policy Response: The Bank of England (BoE) is likely to cut interest rates by 50 basis points and launch additional quantitative easing (QE) totaling GBP 100 billion.

2. UK Political Situation

• No Second Referendum: The government has not indicated a willingness to hold a second referendum, which would likely require a significant worsening of conditions and support from "regretful Leavers".
• Conservative Leadership: Theresa May is the favorite for leadership, seen as a "reluctant Remainder", while Michael Gove is also in the race.
• Labour Party Disarray: The opposition Labour party is in disarray, with Jeremy Corbyn losing support among MPs. A leadership contest is likely in late September.
• Scottish Referendum: Scotland voted to remain in the EU, prompting the SNP to call for a second independence vote. However, the European Council has shown little interest in discussing Scotland’s position.
• Article 50: The UK will wait until it has a clear negotiating position before invoking Article 50, which may require parliamentary approval.

3. Eurozone Economic Impact

• GDP Revision: The UK's exit is expected to reduce Eurozone GDP by 0.5% in 2016-17 due to uncertainty, trade disruption, and tighter financial conditions.
• Inflation Trends: Core inflation is likely to rise above the spring 2015 record low of 0.6% y/y.
• ECB Policy Response: The European Central Bank (ECB) is expected to respond with further easing, including asset purchases and liquidity injections, and may cut the refinancing rate.
• Long-Term Uncertainty: The long-term impact of Brexit on the economy is unclear and will depend on the new UK-EU relationship, including trade, regulation, and competition policies.

4. US Economic Impact

• Minimal Direct Effects: The direct impact of Brexit on US growth is likely to be minimal, with US exports to the UK and EU (excluding the UK) accounting for about 5.6% and 16.9% of total US exports, respectively.
• Indirect Financial Effects: Indirect effects through financial channels could be more significant, with tighter financial conditions potentially knocking 0.2% off US GDP over two years.
• Fed Policy Outlook: The Brexit vote reinforces the expectation of no Federal Reserve rate hikes in 2016 or 2017, increasing downside risks to the Fed's international outlook.

5. Global Markets Impact

• Uncertainty Persists: Markets remain unsettled due to political uncertainty in the UK and unclear negotiations with the EU.
• FX Market Outlook: The GBP is expected to remain weak, with GBPUSD and EURGBP rates projected to be 1.35 and 0.82, respectively. The USD is expected to benefit from reduced Fed tightening expectations.
• Interest Rates: Global interest rate curves are expected to flatten due to lower growth expectations, with central banks maintaining a dovish stance.
• Equity Market Outlook: Equity markets have rebounded slightly, but the overall outlook remains bearish due to expected earnings declines.
• Credit Market Outlook: Credit default swap (CDS) indices have rebounded, but the outlook for credit remains negative, especially for UK, eurozone peripheral, and CEE markets.
• Emerging Markets: Emerging markets have been relatively isolated from the Brexit crisis, but continued USD strength and global growth slowdown pose risks.

Key Information

• GBP Depreciation: The GBP has dropped significantly, with a 12.6% fall against the USD and 10.2% against the EUR.
• Inflation Peaks: Inflation is expected to peak near 3% in late 2017/early 2018, though wage and domestic price pressures are weaker than previously forecast.
• Policy Responses: The BoE and ECB are expected to implement further easing measures, including rate cuts and asset purchases.
• Market Volatility: Realized volatility and volatility of volatility are expected to remain high, with a flight to quality observed in gold, government bonds, USD, and JPY.
• Sectoral Impact: The UK's departure may reduce its dominance in EU financial services, potentially benefiting other financial centers.

Summary of Market Outlook

Risk Factors

• Contagion Effect: Brexit could fuel anti-establishment sentiment in the EU, affecting the region's political and economic stability.
• Uncertainty: The lack of clarity on the UK's future relationship with the EU and the political instability in the UK and EU are major risks.
• Financial Conditions: Tightened financial conditions and reduced Fed tightening expectations are expected to impact global markets negatively.

Conclusion

The UK's exit from the EU has introduced significant economic and political uncertainty, affecting growth, inflation, and financial markets globally. The ECB and BoE are expected to respond with further monetary easing, while the long-term impact of Brexit will depend heavily on the nature of the new UK-EU relationship. Markets remain volatile, with a flight to quality observed and equities expected to face continued pressure.