Fra BNP Paribas:
Global/Key themes: Tony Blair had thought anti-establishment populism could take over a party but not a country. Now it has; who’s next?
Markets seem to think EU – UK = E; i.e. big risk of less U. UK is ~2% of global GDP; UK GDP ~2% lower would mean half of 0.1% off global GDP – so why the fuss? Rather than inspire anti-EU sentiment, will the uncertainty and problems facing the UK undermine those calling for an exit from the EU? UK:
UK equities may only be down 5-6% in GBP terms, but they’ve lost 15-16% in USD terms, similar to the performance of Italy and Spain.
Difficult to think of a time in which both the UK governing and main opposition party have been in such disarray. Could we be on the cusp of a significant reshaping of UK party politics with a party splitting?
The timetable for choosing a new Conservative leader has come forward. Perhaps this is a realization that there needs to be a sense of direction sooner rather than later.
Initial comments from the EU institutions on the UK vote suggest there is unlikely to be a consensual divorce between UK and EU.
At what point does sterling become a buy? Approaching 1.31 on cable, lower than in financial crisis. Eurozone:
IBEX and MIB down 12%, FTSE down less than 3% suggest markets see UK leaving EU as a bigger deal for EU than UK.
The UK’s vote to leave the EU seems to have had an impact on the Spanish general election, with voters lending support to the establishment parties, signaling their will for stability.
In Italy, popular support towards establishment parties might increase should uncertainty continue. This will be key to watch ahead of Mr. Renzi’s constitutional reform referendum in October.
Peripheral bond spreads have held up to this point. The Spanish election result has been helpful.
