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What Analysts Think Central Banks Will Do Following Brexit

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What Analysts Think Central Banks Will Do Following Brexit

Now that Britain has officially voted to leave the eurozone, central banks are left to decide what (if anything) they will need to do to stabilize global markets. Several Wall Street analysts have already given their takes on the issue.

Capital Economics believes the rhetoric about the dangers of a Brexit coming from most central banks in recent months in an effort to discourage voters will immediately die down. “This should help calm nerves and, even if it doesn’t, policy support by developed world central banks should ultimately help to contain the financial fallout,” the firm’s note read.

Berenberg Chief Economist Holger Schmieding believes central banks will offer any liquidity that is needed to cover for short-term market shortages in the wake of the vote. “That the European Central Bank is buying sovereign and corporate bonds worth €80bn per month anyway limits the risk of a dramatic blowout in yield spreads as markets ratchet into risk-off mode,” Schmieding explained.

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Capital Markets’ Charlie McElligott sees “govts intervening in FX mkts real-time, esp the Swiss National Bank and EM’s (South Korea, India and likely Singapore already), with risk of BoJ soon.” While McElligott believes an interest rate cut by the Bank of England is imminent, the U.S. Federal Reserve has its hands tied because the Brexit is not a local issue.

Finally, HSBC analyst Murat Ulgen said emerging markets, particularly in Asia, are relatively insulated from the European chaos. “Once the dust settles, we think the decision is unlikely to have a sustained impact, at least for regions other than Central and Easter Europe (CEE),” Ulgen noted.

So for on Friday, the iShares Barclays 20+ Yr Treas.Bond (ETF) (NASDAQ: TLT) is up 2.7 percent while the iShares Trust (NYSE: EWU) is down 10.1 percent.

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

 

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