Macro Outlook – Brexit Brings Uncertainty

The UK has voted to leave the EU without a plan about how to do so. This increases uncertainty and economic risk, enough that we no longer expect the Fed to hike this year. Systemic risk measures, however, remain well-behaved.

Market Playbook – More Cyclical, Less Systemic

We see further downside to GBP and EU equities, but we think the ECB will work hard to contain systemic risk in corporate and sovereign credit. There is no change to credit as our preferred asset class, the US as our preferred equity region, or JPY as our preferred currency, but we do moderate our preference to own volatility, and note our new Fed call means yields are more likely to stay lower for longer.

New Trades and Views

Relative to our last Playbook, we have broadly moderated our volatility views to neutral, now recommend buying UK inflation (given GBP weakness) and are less negative on EUR (but see more downside to GBP). We like risk/reward in receiving Brazil rates, given the Fed is on hold. The $8bn Countrywide settlement

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