Australian Markets Weekly: 27 June 2016

It’s now nearly 72 hours since British voters voted to exit the European Union and we examine the aftermath of this decision.

By

Brexit 72 hours on

  • Market reaction to Brexit to dominate trading this week. Volatility likely to remain elevated; risk-off sentiment to continue; most of short-term impact likely to be on UK economy and markets, where many expect UK recession (though the lower GBP should provide some offset), with the medium-term reaction and consequences likely to depend on the extent to which there are flow-on referenda in other European countries and investors question the durability of the Eurozone more broadly.
  • Australian election this weekend. Latest Newspoll has government in the lead – bookmakers have government very short priced favourite at $1.15 (ALP $6.50). We consider the main differences between the parties and the possibility (and consequences) of a negative outlook for Australia’s credit rating.
  • RBA likely to remain on hold in July (next Tuesday) and monitor ongoing developments in the UK, the European economy and world financial markets.

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