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.

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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