Halister News

(Bloomberg) -- Sterling and U.K. equities will come under pressure between now and the June 23 vote on EU membership if polls are close and the perceived possibility of a vote to leave is high, Jacob Nell, a U.K. economist at Morgan Stanley, tells journalists in London.

• GBP/USD would fall to 1.30 if the U.K. were to vote to leave
  • EUR/GBP is harder to call as Europe would also be affected by Brexit
• The move lower would correct in the event of a vote to remain; see GBP/USD at 1.40 in that scenario
• Favor stocks of companies with global cash flow in the event of Brexit as would benefit from a weaker currency, whereas companies with euro-area or U.K. cash flows will take a hit
  • In terms of sectors, Morgan Stanley recommends oil as it has the smallest share of sales exposure to U.K. and Europe
  • As little risk has been priced in to date, see stocks little changed relative to current levels on a vote to stay
  • In credit, see a 30bp tightening of spread vs EUR bonds, back to levels before the Scottish referendum if the U.K. stays, and a widening to new records on a Brexit
• See 35% chance of a vote to leave
  • Next few days will be crucial; Cameron’s statement in parliament at 3pm will show how his party is managing this debate; London mayor Boris Johnson’s campaign strategy, opinion polls and betting markets are worth watching for signs on the likely outcome of the vote
  • Migration events, terror events, financial crisis events in Europe -- if they’re linked to EU membership -- will definitely be negative factors for the “remain” campaign
• NOTE: Selling EUR/USD is the best Brexit trade as the U.K. voting to leave EU would suggest the Union may no longer expand and integrate, MS said on Friday