Barclays: Brexit Is 'A Leap Into Uncertainty'

Global financial markets were taken by surprise by the U.K. vote to exit the Eurozone, and traders are now watching to see just how bad the fallout will be. Barclays analyst Marvin Barth believes the biggest threat to the global economy are continued move toward anti-globalization.

Barclays expects the sell-off in risk assets will me more than just a short-term event.

The firm is recommending traders buy U.S. Treasuries and go underweight on emerging market equities and commodities. Barclays is also recommending forex traders go long the U.S. dollar and the Japanese Yen versus all European currencies.

“The feedback-loop between financial market reaction and the real economy will play a crucial role in how forceful global implications will be,” Barth explains. “We expect at minimum a minor recession in the UK and significant slowing of euro area growth in the year ahead.”

Barclays is predicting there will be an emergency meeting of the G7 this weekend. Despite market volatility, Barth believes central banks may initially “hold their fire,” but there’s also a possibility that the Swiss National Bank (SNB) may proactively remove exemptions from negative deposit rates in upcoming weeks.

Barclays PLC (ADR) (NYSE: BCS), Lloyds Banking Group PLC (ADR) (NYSE: LYG), Royal Bank of Scotland Group PLC (NYSE: RBS) and other U.K. bank ADRs opened Friday’s session down more than 20 percent.

Disclosure: the author holds no position in the stocks mentioned.