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UK votes to leave the European Union: As it happened – TDS

By Sandeep Kanihama

Research Team at TDS, notes that the UK Referendum resulted in a win for the Leave campaign, with a 51.8% share of the vote.

Key Quotes

“PM Cameron and BoE Governor Carney have been able to offer support and clarity that we will have a new PM by early October, Article 50 will not be triggered until sometime after that, and the BoE stands ready to “take measures as required” and provide up to £250bn in liquidity for the banks if they need it.

We see the odds of a UK recession within the next 12 months now as 60%. We pencil in year-end targets for GBPUSD of 1.20 and 0.50% lows in 10y gilts, and shift the next Fed hike to June 2017, with a 30% chance of a rate cut but only if downside risks materialize, in what will be fluid forecasts with large margins of error.

Initial developments, while historical on numerous accounts in terms of the market reactions, should still be seen as fairly orderly. There have been few signs of funding or liquidity stress up to this point and a reasonable amount of calm in assessing further implications from here. So far this looks like a shock, not a crisis.

A stronger USD, weaker inflation expectations, and weaker equities and oil prices should likely be seen as a headwind to risk sentiment for the time being. For risk to be supported, real yields must start a new move lower which will offset the drag. Overall, while we see our initial assessment of macroeconomic implications as roughly fair, we think the skew may be to see the outcome less bad than expected.”

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