BREXIT .. or EXIT ..?!

 

The pound has already dropped more than 2 percent versus each of its Group-of-10 peers in 2016 as an uneven economic recovery and waning prospects of an interest-rate increase add to concern the nation will quit the world’s largest single market. The slide has accelerated since Prime Minister David Cameron announced the date of the vote on Saturday, and everyone from politicians to corporations are now setting out their views for and against Britain quitting.

The pound is already becoming a political football game . Pro-Europeans cited Goldman Sachs Group Inc.’s warning that the currency may fall 20 percent on a Brexit in their campaign material. Sterling slumped the most since 2010 on Monday after London Mayor Boris Johnson, one of the nation’s best-known politicians, lent his support to the “Leave” campaign, putting him at odds with party colleague Cameron.

The prime minister was questioned by lawmakers on Monday and asked whether the pound’s slide is a sign of the economic upheaval that would follow an out vote. And Bank of England Governor Mark Carney was drawn into the debate on Tuesday, acknowledging that the referendum campaign is weighing on sterling.

The pound is already at the lowest level since March 2009, falling as far as $1.3965 on Wednesday. It’s approaching the 14-month low of 78.98 pence per euro reached on Feb. 11, and is at its weakest on a trade-weighted basis since March 2014.

Reaching the lowest level versus the dollar since 1985 would mean surpassing 2009’s low of $1.3503 and see it tumble to levels unvisited since Prime Minister Margaret Thatcher crushed the unions in Britain’s miners’ strike and London was aflame with race riots -and hosted the U.K.

A British exit from the European Union would be so devastating for the pound that 29 out of 34 economists in a Bloomberg survey see it sinking to $1.35 or below within a week of a vote to leave — levels last seen in 1985.

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Meanwhile in the European Union :

Mario Draghi has two weeks left to decide how to ramp up stimulus in a way that doesn’t upset either his colleagues or investors.

When European Central Bank policy makers meet in Frankfurt from March 9-10, they’ll consider whether negative interest rates and 60 billion euros ($67 billion) a month of debt purchases is enough to revive consumer prices. With another rate cut priced in by markets, the biggest question mark hangs over how to customize quantitative easing.

The ECB president has said there are no limits to how far policy makers will go within their mandate, yet sub-zero rates carry risks and expanding QE is easier said than done. He’ll walk a fine line between convincing investors he can overcome the hurdles and avoiding the market disappointment that greeted the last adjustment in December.

Rate cut 

A cut in the deposit rate of at least 10 basis points from the current minus 0.3 percent is wholly expected by investors. As that would further squeeze the profitability of lenders, officials may introduce a two-tiered rate or grant higher exemptions for minimum reserves, strategies used by peers such as the Swiss National Bank. ECB Vice President Vitor Constancio said last week officials should “mitigate the effect on banks” of any easing. The country to watch is Germany. As purchases are effectively linked to the size of the economy, it makes up almost a quarter of QE. Yet of the 51 securities in the Bloomberg Germany Sovereign Bond Index, only 15 meet the rules on yield and maturity, accounting for $379 billion of the $1.1 trillion index. 

 

EUROPEAN MARKETS 

 

Name Price Change % Change 1-Day
FTSE 100 5,886.10 -76.21 -1.29%
DAX 9,196.24 -220.53 -2.34%
CAC 40 4,154.27 -84.15 -1.99%
EURO STOXX 50 Index 2,827.52 -59.86 -2.07%
EURONET 100 817.04 -16.48 -1.98%

 

J.Mason ♦

 

 

 

 

 

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