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Brexit would trigger 'economic and financial shock' to UK - business live

Discussion in 'Market News' started by Lily, Jan 25, 2016.

  1. Lily

    Lily Forum Member

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    Up to 2% could be wiped off GDP if the UK leaves the European Union, hurting real incomes and weakening the pound, says Credit Suisse


    2.16pm GMT

    Oil prices continue to slide, losing much of the gains made during Friday’s rally.

    As we said earlier, there are several reasons for the decline, including Iraq’s production hitting a record in December and oil giant Saudi Aramco saying it won’t cut investment in new production.

    It is vital the market addresses the issue of the stock overhang. As you can see from previous cycles, once this overhang starts falling then prices start to rise.

    Given how this developed, it should be viewed as something Opec and non-Opec tackle together.

    1.31pm GMT

    Greece’s economy is expected to have contracted by 0.2% last year, according to Bank of Greece governor Yannis Stournaras.

    The country is likely to stay in recession in the first half of 2016, he said in a speech to Hellenic American Chamber of Commerce, but it could rebound over the course of the year.

    1.23pm GMT

    Unilever’s boss Paul Polman - who earlier said the company would not scale back its UK operations if Britain voted to leave the EU - has hit out against a possible sugar tax. Graham Ruddick reports:

    The boss of Unilever, one of the world’s biggest food manufacturers, has warned that a sugar tax will not solve Britain’s obesity crisis and urged the government not to introduce one.

    Amid a growing clamour from politicians and campaign groups for a sugar tax, Paul Polman said there was little evidence that introducing a levy on food and drink with a high sugar content would help tackle obesity.

    Related: Unilever boss warns UK against sugar tax

    1.07pm GMT

    A referendum could be held in June this year, provided prime minister David Cameron reaches a deal at next month’s EU summit, reckon Credit Suisse:

    Ministers have calculated that roughly four months are required between the announcement of the referendum and the referendum. Our base-case scenario is for the referendum to be held in June 2016, but any delays in the renegotiation could push it out further.

    The final outcome of the renegotiation and the deal that Prime Minister Cameron manages to secure is important, in our view, for the result of the referendum. Opinion polls so far show a lead for the remain campaign with 45% voting to remain in the EU versus 39% voting to leave, if we take an average of the opinion polls in December 2015. The lead of the remain campaign has narrowed though across all polling companies, with a few polls even showing the leave campaign in the lead. The share of don’t knows is still quite significant, i.e., on an average 15% of the voters are undecided. Since the lead of the remain campaign is narrow, the undecided voters will be key for the outcome of the referendum.

    It is also important to be cautious while interpreting these opinion polls, given that in past events such as the UK 2015 general election they were not completely reliable. They are also likely to move once the deal with the EU is finalized as we discussed above.

    12.44pm GMT

    Brexit would also have long-term implications for the UK’s political landscape, Credit Suisse points out in their new report.

    For example, what if Scotland largely votes to stay in and seizes on the overall exit decision as a reason to hold another referendum? Or what if Brexit creates a recession painful enough to allow the opposition Labour Party under supposed ‘radical’ Jeremy Corbyn to benefit from a surge in opinion polls?

    A significant risk for the UK would be selling by foreign holders of UK assets.

    12.28pm GMT

    Britain’s EU referendum was a big issue at Davos last week.

    IMF chief Christine Lagarde warned that Brexit fears are destabilising the financial markets at a critical time, while many delegates spoke privately about the issue.

    If the UK votes to leave the EU, it is likely to entail an immediate and simultaneous economic and financial shock for the UK.

    We can expect a drop in business investment, hiring and confidence. A sudden stop of capital flowing into the UK could make the large current account deficit difficult to sustain and lead to a sharp fall in sterling. In its most extreme that could mean a level drop in GDP of 1%-2% in the short term due to the toxic blend of depressed business confidence, tightening financial conditions, higher inflation and falling real incomes.

    Given that these capital flows finance the large current account deficit in the UK (roughly 4.0% of GDP), this will make the current account deficit difficult to sustain. A vote to leave the EU could be the catalytic event that turns the UK’s current account deficit from “something to worry about” to “a problem”.

    In our view it is more likely to be a unique relationship tailored specifically for the UK, resembling a free trade agreement for goods with restrictions for services.

    11.57am GMT

    Over in Greece, prime minister Alexis Tsipras has marked the first anniversary of his famous election victory - which prompted so much drama and discord during 2015.

    The battle isn’t over. It is still in front of us. Europe, a year later, is not the same. The seed that we sowed is fertilising and we already have the first fruits of this development.”

    11.42am GMT

    Back in the City, shares in DIY chain Kingfisher have slumped to the bottom of the league table today, down 4%.

    Investors don’t seem impressed by its new strategy, announced this morning, which includes returning £600m to shareholders.

    There are nine separate operating companies within Kingfisher that the group said last year it would bring together. The idea is that the combined operation will benefit from economies of scale in its buying power and hopefully help create a more unique Kingfisher product range.

    Kingfisher has costed the plan at about £800m, knocking £50m off profits in year one and £70m-£100m in year two.

    Related: B&Q owner fix share price £500m year profit boost

    11.33am GMT

    More downbeat news from UK manufacturers this morning, who continue to struggle with a tough export market, according to a survey from business group CBI.

    “Manufacturers have seen a flat start to 2016 but while we have seen real problems in some industries in the last few months, there are signs that orders and production are stabilising overall.

    “Uncertainty around the prospects for global growth, uncompetitive energy costs and the strength of the pound have all played their part in UK manufacturers finding conditions tough when trying to sell overseas.

    11.13am GMT

    JP Morgan’s weekly healthcheck of the global economy shows that growth remains modest:

    JP Morgan instant Nowcast tracker of global growth ticking along at 2.6%, sluggish but not crisis/slump pic.twitter.com/XtOIKk4xPu

    10.19am GMT

    The recent market turmoil has left many traders and analysts gasping for a G&T or two (or three).

    Related: Fever-Tree mixers prove just the tonic with 77% rise in sales

    9.51am GMT

    IFO’s top economist, Klaus Wohlrabe, has told Reuters that German businesses are “frightened at the start of the new year”.

    9.32am GMT

    Here’s some reaction to this drop in German business morale this month (see last post)

    Largest decline in IFO expectations component since before Draghi's Whatever It Takes (June 2012).

    IFO services index also dropped significantly in January, to a 6-month low.

    Ifo: "The year started with an unpleasant surprise for the German economy." https://t.co/B60CLQpirW pic.twitter.com/jWDGtkCp4D

    9.31am GMT

    Morale among German business leaders has taken a thump this month, as concern over the global economy builds.

    The monthly survey of German economic sentiment from the IFO think tank shows that business leaders are less optimistic about the future.

    9.19am GMT

    Quiet start to the day as FTSE loses earlier gains with #Oil falling. Volumes set to remain low with bad weather in the US #snow #Trading JG

    9.15am GMT

    Ouch. Russia’s economy has suffered its deepest slump since the dark days after the collapse of Lehman Brothers.

    9.00am GMT

    Today’s action in a Bloomberg nutshell:

    - European stocks drop - Asian markets rally - Oil falls back again - Japan deficit narrows https://t.co/9OhwxmjXoM pic.twitter.com/BMha8Octcv

    8.54am GMT

    FXTM Research Analyst Lukman Otunuga warns that economic fundamentals are still weak:

    Anxieties around slowing global growth, ongoing China woes, and emerging market weakness continue to weigh heavily on global sentiment, while the extended decline in commodity prices have sabotaged most major central banks inflation goals.

    8.47am GMT

    The selloff in oil is gathering pace this morning, and pushing European markets lower.

    Brent crude has now lost 3% this morning, and is now down at $31.20 per barrel.

    Here we go again?! After last week's late surge the oil price is falling again with Brent Crude Oil down 3% @ US $31.28 #Disinflation

    8.33am GMT

    This could be a tricky day for investors, warns Conner Campbell of SpreadEx.

    It’s the final week of 2016’s dreadful January, leaving the markets with a few more days to mitigate the disastrous losses that have plagued the start to the New Year.

    Not that the morning’s trading is inspiring much hope so far…

    8.23am GMT

    Trading had begun in Europe, with the main stock markets gaining around 0.3% to 0.5%.

    But almost immediately, they started slipping back. The sight of the oil price dropping back below $32/barrel is hitting confidence.

    We’ve got a rather troubling start to the European session with crude oil having sold off quite sharply over the last hour or so.

    We remain well up on the prices posted at the middle of last week, but this weakness could unsettle equity markets which soared last week as oil prices appeared to find something of a foot-hold.

    8.07am GMT

    The oil price is rather frisky this morning.

    Brent crude hit $32.81 per barrel in early trading, a two week high. But it couldn’t hold such giddy heights for long, and is now down 1% at $31.85.

    Oil losing it's uptick...Brent dipping back below $32 pic.twitter.com/yzVB9BTEb2

    Oil does an early U-turn. dude, where's my narrative? pic.twitter.com/sJQALbeLvg

    7.55am GMT

    Investors would be wise to treat today’s market rally with some caution.

    China’s slowdown, and the knock-on effect on emerging markets, means 2016 is going to be a turbulent year.

    It’s difficult to know how long this little resurgence in risk appetite will last. China is about to go offline for Chinese New Year beginning 8 February; this could remove the destabilising force of the Chinese equity markets for a while. But China’s Q1 data is set to be very weak, and, when this starts filtering out in March and April, that could really turn global sentiment (and oil) as soon as the data hits.

    Historically, markets are still trading at relatively elevated levels according to Shiller’s CAPE, with the S&P 500 still trading higher than one standard deviation above the long-term average.

    7.45am GMT

    Hopes that world central bankers will act again to stimulate growth and ward off a global downturn drove markets higher across Asia.

    7.29am GMT

    Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

    After chasing corporate chiefs and world leaders around Davos last week, it’s back to business as usual today. And after a week of global market turmoil, Monday could be a little calmer.

    Our European opening calls: $FTSE 5947 up 47 $DAX 9833 up 69 $CAC 4367 up 31 $IBEX 8776 up 53 $MIB 19160 up 132

    Continue reading...
     

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