20160624-高盛-Leave_Weaker_growth_and_markets__UK_Referendum_result_provokes_sharp_move_from_risk-on_to_risk-off_18页_412kb

Summary of Document: Leave…Weaker growth and markets

Core Content

The document discusses the impact of the UK's decision to leave the EU on global financial markets, macroeconomic outlook, and specific sectors. It highlights the significant shift from a "risk-on" to a "risk-off" market sentiment following the referendum result, with a focus on the potential for economic and financial instability.

Main Macro and Market Impacts

• Weaker Growth Outlook: The UK's decision to leave the EU has led to a significant downward revision in growth forecasts for both the UK and Europe. The uncertainty surrounding Brexit is expected to have a substantial negative impact on economic activity.
• Central Bank Response: The Bank of England (BoE) is expected to take measures to stabilize markets, including activating swap lines with other major central banks, providing liquidity, and implementing credit easing. These actions are aimed at supporting market function and mitigating FX volatility.
• Interest Rate Cuts: A 25 basis point (bp) interest rate cut is anticipated at the August MPC meeting, as the BoE seeks to stabilize Sterling.
• FX Volatility: The UK referendum outcome is expected to trigger a sharp depreciation of the British Pound (GBP) and the Euro (EUR), while safe-haven currencies like the Swiss Franc (CHF) and Japanese Yen (JPY) are likely to strengthen.
• Equity Market Impact: European equities, especially UK domestic stocks, are expected to fall sharply due to increased uncertainty. The FTSE 250 is anticipated to underperform, with significant declines in sectors such as financial services and industrials.
• Equity Risk Premium (ERP) Increase: The ERP is expected to rise, leading to a decline in major European indices like SXXP and SX5E. The FTSE 100 is projected to fall by about 10% in sterling terms.

Key Information

• Market Correction: The sharp shift in market sentiment is expected to lead to a rapid and broad-based correction in equities and FX markets.
• Impact on Bond Yields: The flight to safety is expected to drive down core European bond yields (e.g., 10-year Gilt yields below 1%) and increase peripheral bond spreads.
• Uncertainty and Policy Risks: The uncertainty surrounding the Brexit process, including the legal and political implications of Article 50, is likely to further complicate the economic outlook.
• Sector Vulnerability: Sectors with high UK exposure, such as financial services, real estate, and travel & leisure, are particularly vulnerable to the adverse effects of the Leave vote.

Key Points and Predictions

• GBP Depreciation: GBP is expected to weaken significantly, with potential declines of up to 11% in a Lehman-type scenario.
• Euro Area Impact: The Euro is expected to underperform due to the uncertainty linked to the UK referendum, with additional risks from potential Euro area instability.
• Safe Haven Currencies: The Swiss Franc (CHF) and Japanese Yen (JPY) are likely to outperform as investors seek safety.
• Policy Uncertainty: The document notes that the economic impact of the Leave vote is highly sensitive to the magnitude of uncertainty and the effectiveness of policy responses.
• Long-term Growth Outlook: The Leave vote is expected to lead to a prolonged period of weaker growth, with the UK economy potentially entering a recession and the Euro area experiencing a decline of around -0.5% over the next year.

Analysts and Contact Information

• Peter Oppenheimer
• Andrew Benito
• Silvia Ardagna
• Huw Pill
• Francesco Garzarelli
• Christian Mueller-Glissmann, CFA

All analysts are affiliated with Goldman Sachs International.

Conclusion

The Leave vote has triggered a sharp shift in market dynamics, with significant implications for the UK and European economies. The BoE and other central banks are expected to respond with liquidity support and policy easing to mitigate the impact. However, the long-term economic and financial consequences remain uncertain and are likely to affect multiple sectors and currencies across the region.