This morning we learn that Britain has voted to Leave the European Union. We lack a clear vision of what future relationship the United Kingdom will have with its largest trading partner, the timescale of the exit, and the........
Toby Nangle, responsabile multi asset di Columbia Threadneedle Investments
configuration of the domestic party political landscape after a brutal campaign. As such we are now entering a period of profound economic, financial and political uncertainty.
Over recent days markets have moved to price in a high chance of a Remain outcome, so the result is one for which financial markets are clearly unprepared.
At open we anticipate that fixed income markets will jump to price a UK recession and a Bank of England rate cut, although the scale of currency weakness means that inflation pass-through will be carefully watched as the MPC have indicated that they will not cut and may indeed hike if inflation expectations become unanchored.
The outlook for European risk assets is clouded. We see a hit to UK growth in the short as well as medium-term, and this economic loss emanating from the UK will impact the nascent economic recovery seen across the continent. But valuations will be hit hardest by the profound uncertainty as to the prospects of political contagion rather than any immediate impact to company bottom lines.
Rarely are risk events so well diarised. This has not helped markets price what looks this morning to be the ultimate outcome, but it has helped central bank prepare contingency plans and we anticipate that they will be there to provide copious liquidity if required.