Post Brexit uncertainties linger over Europe and UK – Danske Bank

Research Team at Danske Bank, suggests that a full Bank of England summer cut of 25bp is more than fully priced in the markets and markets also think it is very likely that the Bank of England will cut further.

Key Quotes

Chancellor of the Exchequer George Osborne spoke on Friday and he suggested that the government will no longer aim at a budget surplus by 2020 see Bloomberg story. He also tweeted that there are ‘clear signs of economic shock in aftermath of leave vote’.

John McDonnell, ally to Labour leader Jeremy Corbyn, has said that Corbyn is likely to face a leadership challenge in ‘the next few days’.

ECB sources said that abandoning the capital key in QE purchases is not currently being debated. The comment followed yesterday’s rumours that this was being considered, which resulted in big moves across EUR FI markets. For cross sovereign market implications of altered QE weights see our tweet from yesterday evening.

A couple of prominent ECB members both repeated that Brexit will affect the euro area recovery. According to Coeure, the ECB is ready to intervene if needed and Praet said the ECB can react very quickly to crisis, thought it cannot untangle political uncertainty created by surprises like Britain’s vote to leave the EU. ECB member Nowotny was also on the wires and said the ECB will give a ‘timely signal’ on whether or not QE will be extended beyond March 2017. In our view, this points to an announcement about the QE programme in September.

German Finance Minister Schauble rejected steps for additional euro area integration. Instead, he wants to expand cooperation between the remaining 27 members to strengthen cohesion, which according to him could include completion of the internal market, better control of external borders, common asylum policy and unhindered cross-border movement of capital.”