Julius Baer: sobre el Brexit, el oro y los bonos asiáticos

Redacción - Lunes, 27 de Junio

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ECONOMICS

 

United Kingdom: Forecast revisions after the ‘yes’ vote to the Brexit 

 

Following last week’s surprising 51.9% acceptance of the Brexit referendum, we have revised our set of economic forecasts for the UK. The pound will continue to suffer after the initial shock we witnessed last Friday, as fundamentals will turn against it. In particular, the meltdown of foreign direct investments is a longer-term threat for the GBP. We therefore revise our forecast of the EUR/GBP at 0.92 over a 3-month and 1.00 over a 12- month horizon, which admittedly could also unfold earlier. Economic growth is likely to be wiped out in the second half of this year, as uncertainty will weigh strongly on investments and hiring, even if trade relations hold throughout the lengthy political process the Brexit provokes, which could last several years. As the first two quarters of 2016 are already home and dry, the drag is not yet fully visible in our revised forecast of 1.4% real gross domestic product growth for 2016, but rather 0.7% we now expect for 2017, down from 1.7%. Due to the drag on growth, the weaker pound will have a rather limited impact on inflation, which is to be expectedly. We revised our consumer price inflation forecast slightly up to 0.6 for 2016 and 1.7% for 2017. For the Bank of England, the 2017 rate hike seems off the cards now. On the contrary, it would not surprise us to see a reaction at (or before) the July meeting.

In reaction to the Brexit vote we cut our growth forecast due to an expected freeze in investment and hiring, while extended pound weakness towards parity vs. the euro will lift inflation within limits. The longer-term impact on potential growth will be dependent on the separation process and resulting agreements.

 

David A. Meier, Economist, Julius Baer

 

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Relative calm in the Asian credit market last Friday 

 

Global markets saw heightened volatility last Friday on the Brexit outcome with equities down and the GBP and EUR selling off on actual event. The risk-off mode triggered capital preservation while expectation of central bank intervention resulted in a surge in US treasuries and developed market global sovereign bonds. The 10-year US treasury yields touched 1.45%, just slightly above its all-time low of 1.39%, before closing 18.4bps down to 1.652%. Over in Asia, despite the volatility, the Asian credit market was generally calm with no panic seen in the overall market. Asian sovereign cash bonds were initially sold but recovered throughout the day. 

 

Given the heightened uncertainty from Brexit and the weakening of the global economy, a US Federal Reserve rate hike is likely to be off the table for the rest of the year. While Brexit will likely impact Asian economies differently depending on their exposure to the EU/UK, overall, global trade is likely to weaken on this temporary setback on globalisation.

 

Magdalene Teo, Fixed Income Research Asia, Julius Baer

 

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Latin American bonds: No panic selling after Brexit 

 

Post Brexit reactions showed no major and generalised weakness in emerging market (EM) bonds. In Latin America, spreads widened by 22 basis points, to 503bps, a rather muted effect compared to the impact seen across global financial markets, particularly in Europe. Latin America has no material direct exposure to the UK, both at country (trade relationships) and corporate (revenue generation) level. Most of these issuers also have little to no revenues or debt denominated in GBP, leaving them practically unaffected by the large swings in the latter. We believe that the effects of European political events would be mostly indirect and through a potentially stronger USD and weaker commodity prices, although reaction in that sense has been rather muted as well.

 

Despite slightly wider spreads, Latin American bonds were relatively stable last Friday. The region has little direct exposure to the UK, both at country and corporate level. 

 

Alejandro Hardziej, Fixed Income Analyst, Julius Baer

 

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COMMODITIES

 

Gold: What comes after the Brexit boost?

 

After shooting up and hitting USD 1,360 per ounce in the morning, gold gave back some of its early gains on Friday. Due to the strength of the US dollar, gold outperformed when measured in pounds and euros. This morning, prices are up around 1% to USD 1,325 per ounce. Following the Brexit boost, related uncertainty should remain a supportive element for gold going forward. Gold should continue trading with market sentiment, i.e. benefit from rising risk aversion and suffering from falling risk aversion. In the short term, prices could rise towards USD 1,400 per ounce, which has been our bullish scenario for some time. Unless wider economic and financial market consequences materialise, e.g. renewed fears of a eurozone breakup, high prices are unlikely to last. History has shown that political events usually do not have a lasting impact on gold but cause short-term deviations from longer-term trends. That said, reflecting the prevailing uncertainties, we lift our gold price targets to USD 1,300 and USD 1,200 per ounce on a three and twelve-month horizon. Outside gold and beyond the impact of the stronger US dollar, we see no fundamental impact on commodity markets and leave our views unchanged.

 

Due to prevailing uncertainties related to the Brexit, gold should remain supported in the short term with prices potentially reaching our bullish scenario of USD 1,400 per ounce. Unless there are wider economic or financial market consequences, high prices are unlikely to last. We nevertheless lift our three and twelve-month targets.

 

Carsten Menke, Commodities Research Analyst, Julius Baer

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