UK: The UK has voted to leave the EU. The turnout was very high but a lot of political questions remain. We expect the BoE to respond with GBP liquidity and swap lines with major CBs could be activated. Within the coming six months, we expect the BoE to cut rates to 0% and expand QE by GBP150-200bn. We expect the UK to fall into a recession in H2.
Europe: We expect a statement from the Eurogroup today while a strong coordinated EU response is likely either before or after the EU Summit next week. Today, the ECB will signal that it is ready to act through its QE programme and over the coming 1-3M we look for a step-up in the monthly QE purchases to EUR100bn.
US: With the Brexit vote, we are pushing back our Fed call and now expect it to be on hold at least for the rest of 2016.
FX implications: We expect EUR/GBP to rise sharply to 0.85-0.90 over the coming month with elevated volatility. We expect EUR/USD to fall to 1.07-1.09 over the coming 3M. NOK and SEK are set to weaken sharply versus EUR whereas EUR/DKK is likely to trade back towards 7.4350 with FX intervention being the preferred tool.
FI implications: We expect a sharp downward pressure on bund yields while curves are set to flatten. Periphery spread are likely to widen sharply initially but expected scaling up in the ECB's QE programme should mitigate the sell-off. We expect DKK spreads to tighten versus Germany.
Equities: We expect European equity indices to fall 10% over coming weeks - UK equity indices will be helped by the fall in GBP and could fall 5-6%.
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