Brexit a ‘big splash with small ripples’

By Jessica Yun
 — 1 minute read

The resignation of three UK cabinet ministers will not have a major impact on global markets, with European and UK fundamentals still looking strong, according to JP Morgan.

Speaking in Sydney on Tuesday, JP Morgan Asset Management global market strategist Kerry Craig said the latest developments in the Brexit negotiations would have a negligible impact on global markets.

Three of UK Prime Minister Theresa May’s cabinet ministers have resigned within days of each other, with Brexit Secretary David Davies and junior Brexit minister Steve Barker resigning on Sunday night and Foreign Secretary Boris Johnson resigning on Monday (just past midnight on Tuesday, local time).


“Brexit [is] a big splash with small ripples,” Mr Craig said. “It was a big event, a country trying to extract itself from the European Union.

“But the global ramifications for that are actually quite muted.”

Mr Craig acknowledged that Europe had “been hit by the political risks that [have] come through” as well as high oil prices and weak core inflation.

But he pointed out other factors that were supporting Europe at the moment.

“On the positive side, the currency is likely to be modest and help exporters; the oil prices are coming down which helps consumers, and the central bank is still very accommodative in its outlook; the unemployment rate is still improving massively across the Euro area; there are just as many jobs being added in Europe as there is in the US,” Mr Craig said.

Furthermore, the earnings outlook still stood at 9 per cent year-on-year for the Eurozone Index this year, which has remained unchanged from the beginning of the year.

“Those are all very positive things for the economy but you've just got these political risks overweighing it at the moment,” he said. “The Eurozone [issue] is very much a regional thing.”

Saxo Capital Markets markets strategist Eleanor Creagh told InvestorDaily that, given that negotiations were still in progress, it was difficult to determine the exact impact it would have on markets.

“For Australia, the final outcome will depend on the final deal between the EU and UK,” she said.

“Exports are a key driver of GDP growth in Australia so maintaining trade agreements with both the UK and the EU will be a priority.

“Australia has just started Free Trade Agreement negotiations with the EU; it will be important for Australian interests to remain with the EU being a 508 million-person export market.”

Ms Creagh also underscored the importance of making deals with both Britain and the European Union over preferencing Britain “at the expense of Europe” and echoed Mr Craig’s sentiments about the risk to global financial markets being “largely contained” within the UK/EU region.


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Brexit a ‘big splash with small ripples’
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