Right now the powers-that-be in Brussels are breathing a collective sigh of relief. The polls and markets are predicting the UK will remain in the EU. Most recent polls show a 55% to 45% split in favor of remaining. The FTSE is up 1.1% today at 6331. The Pound is up 1.3% vs the USD as well. But that doesn’t mean Central Bankers aren’t prepared to rain down cash if something should go awry.
Barclays and other banks believe the Bank of England will cut rates from 0.5% to zero if a Brexit happens. Additionally, a new round of Quantitative Easing will follow. We think that regardless of the referendum vote, the BOE will have to lower rates and break out the QE again.
Right now Global Central Bankers can point to the Equity markets and say; “See, we told you the economy is doing better stupid!” But take note that fund managers like Jeff Gundlach said yesterday he’d be selling EU stocks if the UK voted to remain. Assuming he’s not fading us, that translates as the classic strong hands selling to weak hands stock transfer. Are you ready to buy the highs?
If the FTSE rally fades but the GBP strength doesn’t what will happen? As we said yesterday, the BOE will be back where it started: CTRL P. It will print more money to prop up stocks while weakening the GBP.
So, the EU isn’t worried about a weaker GBP, they just want it to weaken on their time. Market forces be damned.
- Soren K.
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