Even if Brexit Vote Wins, There May Be No Brexit: Daiwa

By Wolf Richter of WOLF STREET

Daiwa Capital Markets, the investment banking arm of Daiwa Securities Group in Japan, issued a laundry list today of the biblical catastrophes that a Brexit will cause to the pound sterling, global equity markets, global futures markets, credit spreads…. It would “cause serious economic/market damage,” and “hardest hit, of course, would be UK financial assets.” And it would trigger a recession.

So the Leave vote would cause a lot of bloodletting among Daiwa’s constituents and globally. The Leave vote would be to blame. We get that. But it gets more complicated:

And while it may be expected that, after the initial knee-jerk response, some of the risk-off sentiment would quickly dissipate in most other markets, the likely economic and political fallout in the UK would affect asset prices there for a considerable period.

So the rout of UK stocks, bonds, home prices, etc. would continue. There would be QE and rate cuts in the UK in response to this rout and to a “sharp slowdown in its aftermath.”

A vote for Brexit “would usher in political uncertainty” of biblical proportions: Prime Minister David Cameron might have to go, given how he’d botched this situation, and his successor – Daiwa points at Boris Johnson – “would likely end up regretting taking the job.”

The note went after the Leave folks with a vengeance:

The Leave campaign, whose whole proposition centered on a set of, at best, dubious claims, have set out no plan whatsoever for how they would separate the UK from the EU.

Some members of the campaign (and hence the Cabinet post-Brexit) have claimed that they would be in no hurry to enact the Article 50 process that would trigger formal negotiations with the other 27 countries to extricate the UK from the EU. Instead, they have threatened to unilaterally withdraw from parts of the EU Treaties, something that would be a flagrant breach of international law and would risk retaliatory action from the rest of the EU.

At the same time, Johnson would face a House of Commons where there would still be an overwhelming majority of pro-EU MPs (and a pro-EU upper chamber), meaning that passing the enormous amount of legislation required to extricate the UK from the EU would likely prove impossible. This would be particularly true if a vote to Leave was only marginal.

OK, as American, I have no opinion on how Brits should vote. But Daiwa says, it might not matter how they vote: There may be no Brexit even if the Brexit vote wins

Continue reading the article at WOLF STREET

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