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Brexit balance sheet expansion central banks chart UK
Brexit balance sheet expansion central banks chart UK

CEIC Gallery/World Economy - July 16, 2016

Can Brexit Trigger a New Wave of Central Bank Stimulus?

  • Post-Brexit turmoil on financial markets raised concerns that major central banks may unleash another wave of stimulus. Bank of England surprised the markets by holding rather than cutting interest rates on its first board meeting since the referendum. Future easing measures, however, may be implemented next month, as it was hinted during the bank’s policy-setting meeting.
  • In order to prevent the European economy from deteriorating in the aftermath of the Brexit vote, the European central bank may add another wave of stimulus by extending the period of its quantitative easing program.
  • Bank of Japan is expected not only to extend its QE program but to introduce further easing. After the re-election of the Prime Minister Shinzo Abe, many analysts consider that we are about to witness the birth of a new type of stimulus which combines fiscal and monetary stimulus.
  • Brexit has already had its effect on the US monetary policy. Possible British withdrawal from the European Union and its economic implications, alongside still unreached unemployment and inflation targets, forced Fed to abstain from increasing interest rates.
  • CEIC Gallery/World Economy/World QE Monitor

    World Economic Overview

    Bullish Equity Market amid Stimulus Expectations Contrary to all expectations, after a sharp decline in the first two days after the referendum, UK equity market entered bull territory. While markets expected Bank of England to cut its policy rate, FTSE100 gained 5.4% from its pre-Brexit value and FTSE-All Share increased by 3.8% (data as of July 12). Both indices increased more than 11.6%, compared to their values after the post-Brexit slump. CEIC Gallery/Hot Topics/Brexit 2016's Worst Performing Currency
  • The British Pound has lost more than 11% against the USD since the Brexit referendum. Thus, the GBP became the worst performing currency among its major counterparts this year, overtaking even the troubled Argentine Peso.
  • Brazil, Japan and Russia currencies have been the best performers so far increasing more than 10% since the beginning of the year.
  • CEIC Gallery/Markets/Foreign Exchange Market Current Account Fears
  • UK persistent current account deficit deepens Brexit fears. Britain’s negative trading position with the rest of the world reached 6.9% of GDP in the first quarter of the year, compared to 5.4% during the same period of the previous year.
  • On the verge of Brexit, the UK will most probably find it increasingly hard to attract the inward flows of capital needed to finance the current account deficit which could potentially trigger a serious sterling crisis.
  • CEIC Gallery/Hot Topics/Brexit

    Emerging Markets Monitor

    PBoC Performs Stealthy RMB Devaluation
  • Brexit indirectly reduced concerns over sharp controlled devaluation of the RMB. Around the British referendum the People’s Bank of China (PBoC) performed a stealthy RMB devaluation against the USD when the RMB/USD pair reached its lowest point in 5 years.p
  • The Chinese Renminbi has lost about 3% against the USD since the beginning of the year.
  • CEIC Gallery/Markets/RMB Depreciation & Foreign Exchange Rates RMB Devaluation Puts Upward Pressure on Metal Prices
  • While Brexit causes uncertainty on the metal markets, it helps the USD strengthening and the RMB devaluation. The latter two put upward pressure on metal prices in China.
  • In Shanghai aluminum price (3-month futures) has increased by 4.6% since British referendum while copper price has surged by more than 6%.
  • CEIC Gallery/Markets/Metal Price & Trend Discuss this post and many other topics in our LinkedIn Group (you must be a LinkedIn member to participate). Request a Free Trial Subscription. Back to Blog

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