Halister News

(Bloomberg) -- U.K. stocks could fall 15% on a vote to leave the EU with a basket of domestically focused companies dropping as much as 26%, Deutsche bank analysts including George Buckley, Jack Di Lizia and Wolf von Rotberg write in client note dated Friday.

• In the run up to the vote, stocks could fall 8% with a basket of companies which generate most of their revenues from the U.K. sliding 9% and a basket of firms with a large foreign revenue base down 7%
• U.K. cash rates may underperform in the run-up to a vote, with the curve steepening even as the front end may stay well anchored; BOE unlikely to tighten until there’s more clarity on the referendum and not for two years after if the U.K. voted to leave
  • The issuance outlook may also be impacted, with the DMO possibly limiting duration into a June vote
  • If the vote keeps Britain in the EU, would expect a rapid return to the status quo, a flattening back of curves and a richening of U.K. cash
• A U.K. exit is likely to negatively impact sterling and may see front-loading of Deutsche’s current forecasts that GBP/USD will reach 1.15 by end-2017, EUR/GBP 0.82 by end-2019
• Weaker sterling and easier monetary policy should help limit the fallout on annual U.K.; nonetheless the impact on annual GDP could be 1pp or greater
• A sovereign downgrade by S&P on Oct. 28 would be a clear risk, weighing on ratings for companies and banks; could raise financing costs and tighten credit conditions, exacerbating the GDP impact
• S&P has the U.K. on negative outlook amid Brexit risk
• NOTE: A U.K. exit would affect the whole region’s sovereign ratings, Moody’s said Friday, according to Reuters