Halister News

(Bloomberg) -- A U.K. vote to leave the EU after the June 23 referendum would likely weigh on GBP, bull-steepen short-sterling and spur further policy easing from the ECB and BOE, Barclays’s analysts led by Philippe Gudin, Moyeen Islam, Hamish Pepper say in a client note.

• There’s no relevant historical precedent for a country leaving the EU and much depends on what terms the U.K. agrees as it leaves
• In Barclays’s baseline scenario, a vote to leave would see a BOE rate cut in Aug. and Nov., possibly moving toward negative money market rates along with more QE and a targeted FLS; negative rates should see a sharp bull steepening in the money market curve
  • The impact on longer-dated term rates is more mixed
• The U.K.’s real GDP would fall by approximately 1.4% by end- 2030 vs status quo, employment growth would turn negative in 2H 2016 and remain in contractionary territory in 2017, with the unemployment rate rising to 6%
• Over the medium term, the impact of an exit on London as a financial hub for Europe would be undoubtedly negative
• The risk of a domino effect to other countries could significantly increase uncertainty about the future of Europe and could lead to a return of the re-denomination risk
• ECB QE may mean there’s no re-run of the financial market stress of 2012 but a ’Brexit’ could hamper business investment and growth
  • Would expect euro-area markets to be volatile and uncertain as investors would naturally ask which European country would look to leave next
  • Expect the ECB to announce further quantitative and credit easing measures in 2H 2016 with QE extended beyond March 2017 and the capital key for EGB purchases removed, an expansion of the TLTRO-2 program; wouldn’t expect further cuts to the deposit rate below -40bps
• NOTE: The referendum may spur persistent political and economic uncertainties that may not end even if the country votes to stay, Citigroup says