GLOBAL EQUITY STRATEGY: This is a follow up to our piece, Brexit scenario: what would happen next? Politics: We see a 30% (and rising) risk of 'Brexit lite'; a new Prime Minister may also be paired with a Chancellor less focused on austerity; we put a very low probability on a change in government before 2020. There is a high risk of another Scottish independence referendum. Growth: UK lead indicators are already consistent with a recession and will likely now worsen. Currencies and rates: Into a 'full Brexit', we think GBPUSD falls to sub-1.30. We take our S&P 500 yearend target down to 2,000 and FTSE 100 to 6,200. We reduce Continental Europe to a marginal OW. We stay overweight of GEM.
>500 Company forecasts reviewed
Across a series of coordinated research reports, our sector, strategy, economic and mid-cap teams
have updated forecasts to capture the immediate impact of the UK Brexit vote. Despite the political
and economic uncertainty, we have moved to quickly capture the big FX moves, higher demand
risk and hence higher risk premia in our valuation methodology.
EPS changes across 30 sectors
With their global exposure, overseas and commodity price dependency, UK listed companies are
relative winners supporting our EPS forecasts in Industrials, Pharma and Staples. Pan-European
industry sectors that have seen the biggest downgrades are Autos, Building Materials and
Diversified Financials. These forecasts do not capture the near-term risk of political decisions or
policy response. Longer term, uncertainty remains over the growth outlook, global trade patterns
and immigration flows.
The “Exane 20”
A re-pricing on Friday’s scale will inevitably drive some strong stock picking opportunities. In this
report we highlight the investment cases for our strongest 10 Outperform and Underperform
investment ideas, the ‘Exane 20’. These are all backed by post Brexit analysis and updated
forecasts. Our key Outperform ideas include ENGIE, Prudential, Shire and WPP. Our key
Underperform ideas include Anglo American, Credit Suisse and UBS. Within our mid-cap
universe we favour Marie Brizard and are most cautious on Nordex.
Strategy: The Commodity Anomaly
So far, on a top-down basis, the equity market has reacted quite rationally. Staples & Healthcare
were the big winners while Financials and UK cyclicals were hit hardest. However, we note the
relative strength of commodity sectors, which aren’t obvious beneficiaries of rising risk premia,
growth concerns, US Dollar strength or European QE. Given the measured equity market response
to the Brexit announcement, we see downside risk before we reach an equilibrium level.
Asian equity markets are mixed as investors assess the fallout of the Brexit decision and panic selling on Friday. There are some signs of "buyer's remorse", as over 2 million Britons have signed a petition calling for a do-over of the referendum, claiming too narrow of a victory and below-75% turnout. Survey in the Guardian also saw 1 out of 5 UK companies considering shift in operations and some 2/3 of business leaders conclude that Brexit was bad for their business. Fin Min Osborne is expected to make a statement on Monday, seeking to "provide reassurance about financial and economic stability" in the UK, though one of the leaders behind Brexit - former London mayor Boris Johnson - declared that the negative consequences of Brexit are "wildly overdone" and the upside is being ignored. GBP/USD is still down about 250pips from Friday close, as Moody's changed its outlook on UK sovereign rating to negative from stable due to the impact of Brexit. Spain Parliamentary elections were less troublesome for the ruling conservative Popular Party as it took 137 out of 350 seats - up from 123 in December - but still not decisive to give it a ruling Majority. Spain Parliamentary elections were less troublesome for the ruling conservative Popular Party as it took 137 out of 350 seats - up from 123 in December - but still not decisive to give it a ruling Majority. PP is still expected to look for coalition help, while the opposition alliance of left-wing Podemos / United Left only took 91-95 seats - results its leaders deemed as disappointing. Verbal intervention remained heavy in Japan, where PM Abe held a meeting with BOJ Dep Gov Nakaso and and Fin Min Aso. Abe said it was critical to strive for greater market stability amid uncertainty following the Brexit vote, adding he has held phone discussions with BOJ Gov Kuroda and also instructed Finance Ministry to take all necessary measures in FX markets.
Nikkei +2.24% Hang Seng -0.50% CSI +1.16% Shanghai +1.12%
Eur$ 1.1039 CNH 6.6604 CNY 6.6395 JPY 101.74 GBP 1.3398 CHF 0.9749 RUB 65.2660 WTI$ 47.53 (-0.25%)
S&P -0.30% EuroStoxx -1.50% Dax -1.33% SMI -1.83%
Macro :
- Italy’s Padoan Says ‘Time to Think the Unthinkable’: Corriere
- Dijsselbloem Says U.K. Shouldn’t Be Punished for Leaving EU
- EU Bank Policy Can Be More Ambitious After Brexit, Giegold Says
- U.K.’s Jonathan Hill Resigns as EU Commssioner After Brexit Vote
- Austria Cut by Moody’s, Citing Weakness in Growth Prospects
- European Union’s Aaa Rating Affirmed by Moody’s; Outlook Stable
- United Kingdom Outlook to Negative by Moody’s; Ratings Affirmed
- Investor George Soros calls for reconstruction of EU after 'Brexit' vote http://reut.rs/28Ua8Tw
- Japan considering unilateral Yen intervention after UK votes for a 'Brexit' - Nikkei
- China’s May Industrial Companies’ Profit Rises 3.7% Y/y
- European IBs Are Exposed to Brexit, Citi Says, Cuts PTs 8%-12%
Keep an eye on :
- AAL LN : Anglo American Said to Close Coal Mines Sale Within Weeks: FT
- BAYN GY : Bayer CEO Says No Pharma Targets as Attractive as Monsanto: WSJ
- CABK SM : CaixaBank Takes EU24.3b in ECB TLTRO-II; Net New Borrowing EU6b
- DBK GY : Deutsche Bank’s Sewing Sees U.K. Banks Hit Hardest by Vote: FAS
- EDF FP : EDF confirms commitment to Hinkley Point despite UK’s vote for Brexit; CEO eager for decision after 4 July union consultation - http://reut.rs/28Ufh2z
- FRE GY : Fresenius Said Near Deal to Buy Pfizer Device Unit: Marketwatch
- FRE GY : Fresenius Names Stephan Sturm as New Chief Executive Officer
- INTC US : Intel weighs sale of cyber security business - FT
- KU2 GY : Midea Offering Kuka Long-Term Guarantees: Frankfurter Allgemeine
- LSE LN : LSE/DB merger faces mounting German opposition; LSE CEO digs heels in over London HQ while Germany considers full takeover - Sunday Times
- LLOY LN :Government shelves plans to sell RBS and Lloyds shares - http://on.ft.com/28TgW3G
- RBS LN : UK government may retain stakes in Lloyds and RBS for years following vote for Brexit - FT
- RCS IM : RCS BoD rules that improved Cairo Communications public offer still not adequate for shareholders
- RCS IM : RCS public offer by International Media Holding increased from EUR 0.7 to EUR 0.8 per share
- SAN FP : Sanofi, Boehringer Sign Contracts on Unit Swap
- SNH GY : Woolworths' Big W business attracts Steinhoff International
- STL NO : Statoil Economist Says Brexit May Lead to Higher Oil Demand: DN
- TEF SM : Telefonica denies Brexit will delay decisions on Telxius and O2 - http://reut.rs/28TjwXy
- TIT IM : Oi Aiming for 50% Debt Haircut If New Investor Joins: Folha
- VOLVB SS : Volvo Sets Aside Extra EU250m to Cover EU Truck Cartel Fine
- WDI GY : Alipay Said in Talks to Buy Up to 25% Stake in Wirecard: BamS
>>> Up
*ABCAM RAISED TO OUTPERFORM AT RBC CAPITAL
*BARRICK GOLD RAISED TO SECTOR OUTPERFORM AT CIBC
*BT GROUP RAISED TO BUY AT CITI
*COMPASS RAISED TO BUY VS NEUTRAL AT CITI
*EUTELSAT RAISED TO EQUALWEIGHT VS UNDERWEIGHT AT BARCLAYS
*FRESNILLO RAISED TO NEUTRAL VS SELL AT GOLDMAN
*GOLD FIELDS RAISED TO NEUTRAL VS SELL AT GOLDMAN
*HALMA RAISED TO ’NEUTRAL’ AT JPMORGAN
*HSBC HOLDINGS PLC RAISED TO NEUTRAL AT JPMORGAN
*IAMGOLD RAISED TO SECTOR PERFORM AT CIBC
*INDIVIOR PLC RAISED TO SECTOR PERFORM AT RBC CAPITAL
*MAN GROUP RAISED TO NEUTRAL VS SELL AT CITI
*RANDGOLD RAISED TO BUY VS NEUTRAL AT GOLDMAN
*SUBSEA 7 RAISED TO BUY AT KEPLER CHEUVREUX
*SWEDBANK RAISED TO OVERWEIGHT AT JPMORGAN
*THOMAS COOK RAISED TO NEUTRAL VS SELL AT CITI
*THYSSENKRUPP RAISED TO BUY VS HOLD AT BAADER-HELVEA
*TUI RAISED TO NEUTRAL VS SELL AT CITI
*UNIBAIL-RODAMCO RAISED FROM EQUAL WEIGHT AT MORGAN STANLEY
*VONOVIA RAISED TO OVERWEIGHT VS EQUAL WEIGHT AT MORGAN STANLEY
>>> Down
*ADECCO CUT TO NEUTRAL VS BUY AT GOLDMAN
*BANKIA CUT TO NEUTRAL AT JPMORGAN
*BANKIA CUT TO EQUALWEIGHT AT BARCLAYS
*BARCLAYS CUT TO NEUTRAL AT JPMORGAN
*BARCLAYS CUT TO UNDERPERFORM VS BUY AT JEFFERIES
*BIG YELLOW CUT TO EQUAL WEIGHT VS OVERWEIGHT AT MORGAN STANLEY
*BRITISH LAND CUT TO EQUAL WEIGHT AT MORGAN STANLEY
*BT GROUP CUT TO NEUTRAL VS OUTPERFORM AT CREDIT SUISSE
*CONTINENTAL AG CUT TO NEUTRAL VS BUY AT GOLDMAN
*CREDIT SUISSE CUT TO UNDERWEIGHT AT JPMORGAN
*DERWENT LONDON CUT TO UNDERWEIGHT AT MORGAN STANLEY
*DEUTSCHE BANK CUT TO NEUTRAL AT JPMORGAN
*FAURECIA CUT TO NEUTRAL VS BUY AT GOLDMAN
*GKN PLC CUT TO NEUTRAL VS BUY AT GOLDMAN
*GREAT PORTLAND CUT TO UNDERWEIGHT AT MORGAN STANLEY
*HAYS CUT TO SELL VS BUY AT GOLDMAN
*INTERNATIONAL CONSOLIDATED AIRLINES CUT TO NEUTRAL AT GOLDMAN
*INTERCONTINENTAL HOTELS RAISED TO NEUTRAL VS SELL AT CITI
*INTESA CUT TO NEUTRAL VS BUY AT CITI
*IAG REMOVED FROM CREDIT SUISSE FOCUS LIST; STILL OUTPERFORM
*ITV CUT TO REDUCE VS BUY AT ALPHAVALUE
*KINGFISHER CUT TO NEUTRAL VS BUY AT GOLDMAN
*LAND SECURITIES CUT TO EQUAL WEIGHT AT MORGAN STANLEY
*LEGRAND CUT TO SELL VS NEUTRAL AT CITI
*LLOYDS CUT TO NEUTRAL AT JPMORGAN
*LLOYDS CUT TO EQUALWEIGHT VS OVERWEIGHT AT BARCLAYS
*MORGAN ADVANCED CUT TO NEUTRAL VS BUY AT CITI
*NESTE OYJ CUT TO SELL AT NORDEA
*NEXANS CUT TO ’UNDERWEIGHT’ AT JPMORGAN
*PAGEGROUP CUT TO SELL VS BUY AT GOLDMAN
*POPOLARE MILANO CUT TO EQUALWEIGHT AT BARCLAYS
*RANDSTAD CUT TO NEUTRAL, REMOVED FROM CONVICTION LIST: GOLDMAN
*RBS CUT TO UNDERWEIGHT AT JPMORGAN
*RBS CUT TO UNDERPERFORM AT RBC CAPITAL
*RBS CUT TO UNDERWEIGHT VS EQUALWEIGHT AT BARCLAYS
*RBS CUT TO HOLD AT JEFFERIES
*REXEL CUT TO ’UNDERWEIGHT’ AT JPMORGAN
*ROYAL MAIL CUT TO NEUTRAL VS BUY AT GOLDMAN
*RYANAIR CUT TO HOLD VS BUY AT EVERCORE ISI
*SHAFTESBURY CUT TO UNDERWEIGHT AT MORGAN STANLEY
*SPORTS DIRECT INTERNATIONAL CUT TO SELL VS NEUTRAL AT GOLDMAN
*SVENSKA HANDELSBANKEN CUT TO SELL VS NEUTRAL AT CITI
*UBI BANCA CUT TO EQUALWEIGHT AT BARCLAYS
*UBS CUT TO UNDERWEIGHT AT JPMORGAN
>>> PT Change
>>> Initiation
>>> Call
>> Stock
*CAPITA ADDED TO CONVICTION SELL LIST AT GOLDMAN
*FIAT CHRYSLER REMOVED FROM CONVICTION BUY LIST AT GOLDMAN
>> Country
*EUROPEAN STOCKS CUT TO UNDERWEIGHT FROM OVERWEIGHT AT HSBC
*U.S. STOCKS RAISED TO OVERWEIGHT FROM UNDERWEIGHT AT HSBC
*UK EQUITIES RAISED TO OVERWEIGHT VS NEUTRAL AT HSBC
*SWISS EQUITIES RAISED TO OVERWEIGHT VS UNDERWEIGHT AT HSBC
>> Sector
*TELECOMS RAISED TO OVERWEIGHT VS UNDERWEIGHT AT CITI
*UTILITIES CUT TO UNDERWEIGHT VS NEUTRAL AT CITI
*METALS & MINING RAISED TO NEUTRAL ON 6-MONTH VIEW AT CITI
Asian Mid-session Market Update: Brexit panic subsides even as GBP falls further on Moody's warning; China industrial profits slow again; Japan officials talk down JPY further
***Economic Data***
- (CN) CHINA MAY INDUSTRIAL PROFITS Y/Y: 3.7% V 4.2% PRIOR
- (NZ) NEW ZEALAND MAY TRADE BALANCE (NZ$): 358M (5th straight surplus) V 182ME; ANNUALIZED: -3.63B V -3.84BE
- (NZ) NEW ZEALAND Q2 WESTPAC EMPLOYMENT CONFIDENCE INDEX: 101.5 v 104.8 PRIOR
***Index Snapshot (as of 03:30 GMT)***
- Nikkei225 +1.4%, S&P/ASX +0.6%, Kospi -0.2%, Shanghai Composite +0.9%, Hang Seng -0.8%, Sep S&P500 -0.3% at 2,012
***Commodities/Fixed Income***
- Aug gold +0.5% at $1,329/oz, Aug crude oil -0.4% at $47.43/brl, Jul copper +0.1% at $2.11/lb
- GLD: SPDR Gold Trust ETF daily holdings rise 18.4 tonnes to 934.3 tonnes; highest since July 2013
- (CN) PBOC SETS YUAN MID POINT AT 6.6375 V 6.5776 PRIOR; lowest Yuan setting since Dec 2010
- (CN) PBOC to inject CNY270B in 7-day reverse repos
- (JP) BOJ offers to buy ¥25B in inflation-indexed JGBs, ¥450B in 5-10yr JGBs
- (KR) South Korea Finance Ministry sells 20-yr bonds at 1.56%
- (AU) Australia MoF (AOFM) sells A$600M in 5.75% 2021 Bonds; avg yield: 1.6522%; bid-to-cover: 4.18x
***Market Focal Points/FX***
- Asian equity markets are mixed as investors assess the fallout of the Brexit decision and panic selling on Friday. There are some signs of "buyer's remorse", as over 2 million Britons have signed a petition calling for a do-over of the referendum, claiming too narrow of a victory and below-75% turnout. Survey in the Guardian also saw 1 out of 5 UK companies considering shift in operations and some 2/3 of business leaders conclude that Brexit was bad for their business. Fin Min Osborne is expected to make a statement on Monday, seeking to "provide reassurance about financial and economic stability" in the UK, though one of the leaders behind Brexit - former London mayor Boris Johnson - declared that the negative consequences of Brexit are "wildly overdone" and the upside is being ignored. GBP/USD is still down about 250pips from Friday close, as Moody's changed its outlook on UK sovereign rating to negative from stable due to the impact of Brexit.
- Spain Parliamentary elections were less troublesome for the ruling conservative Popular Party as it took 137 out of 350 seats - up from 123 in December - but still not decisive to give it a ruling Majority. PP is still expected to look for coalition help, while the opposition alliance of left-wing Podemos / United Left only took 91-95 seats - results its leaders deemed as disappointing.
- China May industrial profits slowed to 3.7% V 4.2% prior and YTD slowed to 6.4% v 6.5% prior. China Stats Bureau said the data still demonstrate positive change, with inventory pressures easing and profit slowdown largely attributed to non-operating revenue slide. China Premier Li was a keynote speaker at the World Economic Forum (WEF) in Tianjin, noting that Brexit increases uncertainty in global economy though viewing China maintaining stable growth. Li reiterated the PBoC would continue conducting prudent monetary policy in a flexible way and expressing some flexibility in the way of room for proactive fiscal policy. Li added China economy is still sound, with stable CPI and employment, even though global trade growth is weak.
- Verbal intervention remained heavy in Japan, where PM Abe held a meeting with BOJ Dep Gov Nakaso and and Fin Min Aso. Abe said it was critical to strive for greater market stability amid uncertainty following the Brexit vote, adding he has held phone discussions with BOJ Gov Kuroda and also instructed Finance Ministry to take all necessary measures in FX markets. USD/JPY opened the week lower by about 60pips below 101.50, but remained supported at that level with a session high above 102.40.
***Equities***
US equities / ADRs:
- JPM: CEO: Will maintain a large presence in the UK despite the Brexit vote - financial press
Notable movers by sector:
- Consumer discretionary: Tatts Group TTS.AU +0.7% (divestment)
- Financials: Mirvac Group MGR.AU +1.5% (private placement); Vanke 2202.HK -3.8% (shareholder calls for reshuffle board); Scentre Group SCG.AU +2.8% (reaffirms guidance); Spotless Group SPO.AU +1.1% (receives bid for laundry unit)
- Industrials: ; Takeuchi Manufacturing Co 6432.JP -11.6% (market momentum); Cathay Pacific Airways 293.HK -4.2% (downgrade); Hyundai Motor Co 005380.KR +1.1%, Hankook Tire Co 161390.KR +2.8% (momentum)
- Energy: Woodside Petroleum WPL.AU +1.0% (project approved)
- Utilities: Taiyo Nippon Sanso Corp 4091.JP +9.4% (acquisition)
‘Brexit’ Surprised Hedge Fund Managers Used to Picking Winners
Even some of the smartest guys in the room got this one wrong.
The billionaire hedge fund manager Leon Cooperman told an audience of Wall Street insiders on Wednesday that there was a 70 percent probability that Britain would stay inside the European Union. “I don’t worry about Brexit,” he added.
Two weeks earlier, George Soros, who became known as the man who broke the Bank of England with a bet against the British pound in 1992, said he was “confident that as we get closer to the Brexit vote, the ‘remain’ camp is getting stronger.”
“Markets are not always right, but in this case I agree with them,” Mr. Soros added.
Then on Thursday, the British electorate voted to leave. The reaction in markets was swift and violent: Stocks around the world went into free fall, the British pound sank to a more than 30-year low against the dollar, and central banks pledged to provide emergency help.
Ben Hunt of Salient Partners, went as far as to call it a “Bear Stearns moment,” evoking the investment firm whose collapse in March 2008 was a prelude to the financial chaos that September.
Yet even as the most successful hedge fund managers now survey a sea of down markets, panic has not gripped the industry. That’s because many hedge fund managers watched the elections from the sidelines. Any winners and losers will be determined in the days and weeks after the vote.
“We’re not in panic mode. We’re just trying to get a sense of things,” said Hans Humes, who runs Greylock Capital, a hedge fund firm that specializes in distressed bonds, adding that Greylock did not make any bets on the Brexit poll.
“There was a ton of cash on the sidelines,” he added.
Britain’s vote to leave the European Union poses difficult questions for investment firms like Greylock, which made big bets on Greece as it teetered on the brink of economic collapse. At a time when many European countries are dealing with flagging economies, Mr. Humes said he was concerned that the Brexit vote would feed a growing populist surge across the Continent, threatening to chip away at the foundation of the European Union.
Other managers sold their risky assets as the markets climbed higher ahead of the vote in anticipation of a “remain” vote, said Troy Gayeski of SkyBridge Capital, a $12.5 billion firm that invests in hedge fund portfolios.
“Very few, if any, were so convinced that Brexit was going to happen that they would risk enough capital to make money from it,” he said.
Jason N. Ader, chief investment officer of the hedge fund SpringOwl Asset Management, said his firm bet against a basket of companies with high exposure to the British pound going into the poll on Thursday to counteract a potential hit to one of his firm’s biggest investments, in GVC Holdings, a British online-gambling company.
As to whether he planned to make any fresh bets after the vote, Mr. Ader said, “This will take a long time to shake out.”
It may not be surprising that a number of hedge funds are proceeding with caution. The last major episode of market turmoil, when Chinese stocks tumbled last summer, sent many hedge funds reeling. Some have yet to recover.
Even as few major winners have emerged, anyone who had large holdings in safe havens like Treasury securities and gold — which rose sharply on Friday — looked smart the day after the vote. That includes Mr. Soros, who told The Wall Street Journal that he didn’t think a Brexit was likely in an interview just a few weeks ago. His Soros Fund Management has taken long positions in gold through an exchange-traded fund, according to recent regulatory filings.
Whether Mr. Soros took any positions to profit from a Brexit is unclear. A day after the referendum, he warned of the consequences of the Brexit vote.
“The consequences for the real economy will be comparable only to the financial crisis of 2007-2008,” he wrote in a post on the opinion website Project Syndicate.
Mr. Cooperman, who cited optimistic figures about the “remain” vote, also sounded a cautious note when he spoke at a Youth INC charity event at the Metropolitan Club in Manhattan on Wednesday.
“I think Brexit is going to have a very negative impact on Europe if it happens,” Mr. Cooperman told an audience of investment professionals.
By Friday, he had adopted a darker view.
“My friend at Microsoft was dead wrong, as was I,” Mr. Cooperman said, referring to the source of his optimistic probability of Britain’s voting to remain.
“This, too, shall pass.”
Britain faces up to waning influence on global stage
Britain faced the stark reality of crumbling influence on the world stage on Sunday as turmoil triggered by the vote to exit the EU plunged the UK into domestic political instability.
EU leaders were preparing a timetable that would see the UK leave the bloc by the beginning of 2019 in the rapidly accelerating fallout from last Thursday’s referendum that shook the postwar European order, rocked financial markets and claimed the scalp of British prime minister David Cameron.
Mr Cameron will address parliament for the first time since the vote on Monday, with both his Conservative party and the Labour opposition in the throes of bitter leadership battles.
John Kerry, the US secretary of state, will visit Brussels and London to discuss the crisis as Washington reassesses its relations with London. “The US must face the fact that the UK will likely be less of an effective and reliable partner in global affairs,” said Jim Stavridis, former Nato supreme commander.
London was facing imminent loss of power over European rulemaking for financial services, a vital sector for the UK economy, the outgoing top British official in the European Commission warned in an interview with the Financial Times.
Jonathan Hill, who resigned at the weekend as EU commissioner for financial services, said Britain now faced being forced to abide by European banking rules shaped in Berlin, Paris and Frankfurt on priorities dominated by the eurozone.
“The voices that would be present at the table without Britain there — the voice of the French financial services industry, German industry, Dutch, Irish — will clearly be heard,” Lord Hill said.
Erik Nielsen, chief economist at UniCredit, said the resignation of the commissioner meant that “whatever influence the UK had in the EU is completely gone as of this weekend”.
Lord Hill warned that it was unlikely British-based banks would be able to preserve “passport” rights allowing them to serve clients across the bloc, not least because these required acceptance by the UK of free movement of people from the EU. “I can’t see that flying given the weight of immigration as an issue in the referendum debate,” he said.
Other senior officials in Brussels said they believed passporting for UK-based institutions was “dead”, a blow to London where more than a third of trading in euro-denominated derivatives currently takes place. Several big banks, including HSBC, JPMorgan Chase and Goldman Sachs have begun preparations for a potential shift of some operations to Dublin, Paris and Frankfurt.
The domestic political chaos set off by the shock referendum result deepened on Sunday as both the ruling Conservative party and the Labour opposition were engulfed in furious leadership battles.
Jeremy Corbyn, the hard left Labour veteran who was elected party leader last year, was under growing pressure to step down after he sacked Hilary Benn, his shadow foreign secretary and alleged coup plotter, prompting the rapid resignation of nine other shadow cabinet members.
Alarmed by the large chunk of Labour’s electorate that voted Leave on Thursday, moderates in the party were angered by Mr Corbyn’s lukewarm support for the Remain cause and wanted him replaced before a potential early general election.
Mr Cameron’s resignation on Friday meanwhile triggered intense manoeuvring over who would replace him as Tory leader in time for the party conference in October. The candidacy of Boris Johnson, the former mayor of London and early favourite, gained momentum on Sunday with the reported backing of Michael Gove, the justice secretary. The two former journalists led the mainstream Leave campaign.
Mr Johnson is likely to face a challenge from Theresa May, the pro-Remain home secretary. But moves were also under way by allies of Mr Cameron and George Osborne, the chancellor, to find a third “anyone but Boris” candidate.
Against this background, Mr Cameron will meet his 27 fellow EU leaders on Tuesday in Brussels for a tense session to try to work out a timetable for negotiations on Britain’s departure. German chancellor Angela Merkel, French president François Hollande and Matteo Renzi, Italy’s prime minister, will hold talks in Berlin today to prepare for the meeting.
Officials in Brussels said plans were being laid for formal negotiations to start on January 1 next year. Under Article 50 of the EU treaty, talks must be completed in time for an outgoing member to leave two years later.
But under those rules, Britain has to invoke Article 50 on its own. Mr Cameron has said he will leave the decision to his successor. Mr Johnson and other senior Leave campaigners have indicated they are in no hurry to set the ball rolling on exit talks.
Leading figures in Brussels and some EU foreign ministers have called for the UK to act quickly. But Ms Merkel said she would not push for an immediate withdrawal. “There is no reason to be particularly nasty,” she said.
In an article for the FT, Chris Grayling, the pro-Brexit cabinet minister, said all sides needed time. “So Article 50 will not be triggered until a considerable amount of informal preparatory work has been done, here and in discussions with EU partners,” he wrote.
Further complicating the outlook, Nicola Sturgeon, Scotland’s first minister, raised the prospect of a Scottish veto on Britain’s departure. Scotland voted with a 62 per cent majority in favour of Remain and Ms Sturgeon has emphasised the country’s determination to stay in the EU.
She told the BBC she believed a “legislative consent motion” would need to be passed by the Scottish parliament to approve Brexit. Although that view is disputed in London, she said if a vote was required, she would call on the Edinburgh assembly to reject it.
Global financial markets are braced for further volatility after Friday’s turbulence, when the pound plunged to its lowest level in 30 years and European bank shares sank 18 per cent.
As the initial shock is replaced by concern over how deep a shadow the decision will cast over the world economy, the pound and bank stocks will remain under the sharpest scrutiny.
The Japanese yen, US Treasuries and gold will be in heavy demand should the flight to safety accelerate when markets open in Asia.
Jaime Caruana, head of the Bank for International Settlements, the central bankers’ bank, warned on Sunday of further instability, but said financial systems were “more resilient” to shocks than during the financial crisis of 2008.
“There is likely to be a period of uncertainty and adjustment,” he said. “I am confident that uncertainty can be contained and that adjustments will proceed as smoothly as possible.”
Brexit: UK's most senior EU official resigns after leave vote – as it happened
http://www.theguardian.com/politics/live/2016/jun/25/brexit-live-emergency-meetings-eu-uk-leave-vote#comment-77205935
Grim Year for U.K. M&A Made More Uncertain by Britain’s Decision to Leave EU
Initial public offerings are also at risk; lower fee revenue is in the offing
LONDON—Dealmaking bankers and lawyers are pointing to early victims of Britons’ vote to leave the European Union: companies that won’t be bought and stock and bond offers put on hold until Britain’s next steps are clearer.
A number of U.K. and European deals had been lined up in the event of a remain vote in anticipation of buoyant markets once the uncertainty around the referendum was dispelled. Instead, an already grim year for U.K. mergers and acquisitions and securities sales is seen as getting worse after stocks and sterling plummeted on Friday.
At least half a dozen U.K. companies that had planned to start initial public offerings or debt-financing deals next week have had to change tack, people working on those transactions said. A senior banker at an American investment bank in London said the IPO market “will be tough for a while,” and lawyers said the only M&A they expect now are opportunistic swoops by foreign buyers on long-wanted British targets.
“I would expect that M&A deal volume in the EU will be very muted if not frozen until the markets stabilize and the ramifications of the exit become clearer,” said Bart Friedman, a senior partner at Cahill Gordon & Reindel. “Cross border activity in Europe having any degree of significant U.K. involvement is likely over for the rest of this year,” he said.
Many companies took a wait-and-see approach in the run-up to the vote, figuring it wasn’t worth the risk to try to guess the outcome. Thomson Reuters figures put U.K. M&A at its lowest level on record this year, accounting for just 4% of global activity through mid-June. Inbound cross-border M&A in the U.K. is down 74% from the same period a year ago. Dealogic data show just $3.33 billion was raised in the U.K. IPOs between January and mid-June, down from $8.29 billion in the same 2015 period.
A pull-back means lower fee revenue for the bankers, lawyers and other advisers who keep U.K. deals ticking. Investment-banking fees paid by U.K. companies dropped 22% from a year ago to $1.9 billion, according to Thomson Reuters. Capital-markets fees in the U.K. fell by 37% from the same January to mid-June period last year, making 2016 the slowest year since 2003 for those fees.
Following Thursday’s outcome there are questions about M&A already under way, such as Anheuser-Busch InBev’s $108 billion offer for SAB Miller PLC. Bankers said the deal could be complicated by Brexit as the weaker pound could make AB InBev’s sterling-based offer to SAB Miller shareholders less appealing and add to charges for AB InBev. AB InBev already lost $599 million in the first quarter on its currency hedges from the deal, the company disclosed in May.
A spokeswoman for Anheuser-Busch InBev said the company didn’t want to speculate on potential hypothetical impacts of Britain’s decision to leave the European Union.
There were also concerns about the planned merger between Deutsche Börse AG and London Stock Exchange Group PLC, and whether London still makes sense as the planned headquarters of the combined entity. The two companies on Friday said the merger won’t be derailed by Brexit.
“Some people have Brexit provisions in their contracts but I don’t see a huge raft of contracted deals falling apart,” said Richard Browne, a partner at Allen & Overy.
“Most of the questions I’ve been getting from clients is on wanting to know what everyone else is doing,” he said.
Rob Allard, a former Goldman Sachs banker and co-founder of U.S.-based hedge fund Firebreak Capital, said Brexit won’t affect his plan to buy a U.K.-based consumer-finance business although he will reassess his currency hedges. He said he is also thinking about knock-on effects of the separation.
“Brexit has probably put us off looking at Ireland at this stage,” Mr. Allard said, because of his concerns about how U.K.-Ireland trade flows might fare in a new EU order.
Others were optimistic that a weak pound could give a small boost to deal flow after the initial uncertainty has passed.
“In a month or two, we might actually see an increase in deal volume as opportunistic investors find the valuation opportunities too seductive to pass up,” Mr. Friedman said.
Can Brexit be stopped? Anything is possible
Leaving the EU is harder than anyone thought, but so is defying the will of the people
Four days after Brexit, is there any way back?
A petition calling on MPs to overturn last week’s Brexit decision is up to 3.3m signatures and counting. Young people, three-quarters of whom voted to stay, have turned to social media to voice anger and dismay that their future has been decided by retired baby boomers. Former prime minister Tony Blair has suggested a second referendum is possible and, with financial markets shaky and Brussels already closing doors on Britain, buyer’s remorse may well spread. So could the nation change its mind? Is there any way back? Well, anything is possible, but, as things stand, one can make only two statements with confidence. And, no, they are not consistent.
The first is that the Brexiters are about to discover that unravelling Britain’s relationship with the EU will be costly and hugely disruptive. Politically, legally and constitutionally it will be immeasurably harder than imagined in the bluff statements of Outers such as Boris Johnson and Michael Gove.
The second is that something truly extraordinary would have to happen before parliament — which remains the sovereign decision maker on the matter — decided to overturn the will of the 17.4m people who voted for Brexit in the referendum. A few million signatures on a petition will not do it. The absolute minimum requirement would be a general election victory for a party that had promised explicitly to think again.
After the party . . .
Leading Brexiters have been celebrating what Nigel Farage has called “independence day” and Boris Johnson is planning his bid for 10 Downing Street. Now the hangover looms.
The more thoughtful among the Outs have realised that tearing up four decades of foreign and economic policy will not be as easy as they thought. The obstacles are formidable, even if you put aside the determination of some EU states to make things as difficult as possible. Back in Britain the leavers have yet to agree even on when to trigger Article 50 of the EU treaty, which would start the clock ticking on a two-year process of withdrawal.
More fundamentally, two-thirds of the MPs who must put the decision into law were on the Remain side of the argument. Few of them would be prepared to defy last week’s vote, but the referendum said nothing about what should replace full membership. At present a majority would probably back some form of association agreement that would keep Britain in the single market. But this is explicitly at odds with the leadership of the Leave campaign. The result could be political paralysis. Parliament must approve any eventual settlement.
The differences do not stop there. One argument deployed by the leavers is that money would be freed up to spend on the NHS and other public services. But the Outs also include a large group of rightwing market liberals who want to cut public spending and reduce taxes. Someone is going to be disappointed.
It is hard to see how these conflicts will be resolved — particularly if Tory party activists send Mr Johnson to Downing Street. The former London mayor is loathed by a significant segment of Tory MPs and would struggle to command loyalty in the Commons.
The problems do not stop at Westminster. EU membership is embedded in the devolution settlements for Scotland and Northern Ireland. Disabling EU law in those jurisdictions would require the consent of the Scottish parliament and the Northern Ireland assembly. Nicola Sturgeon, the Scottish first minister, has already made it plain that the Scottish National party-dominated parliament will refuse. A constitutional crisis looks inevitable as does a second referendum that, this time, could see Scotland leave the UK.
Second thoughts?
So if it is all so difficult why not think again? Well, most obviously when parliament legislated for a referendum it made clear that it would respect the outcome. The vote was won by the Brexit side and discarding the votes of the majority by any stretch would be an extraordinary constitutional act. Sure, other European nations have reversed themselves on EU issues but they have different constitutions and there was far less at stake.
The Tory Outs are not about to change their minds. So any reconsideration would require the election of a new government with a clear mandate to negotiate a new arrangement with the other 27 EU members and put the outcome to a second referendum.
In other circumstances this might be imaginable — just. But the Labour party is at present led by Jeremy Corbyn, a politician widely regarded as unelectable and, anyway, at best lukewarm about the EU. The weekend mass resignations of members of his shadow cabinet might lead eventually to Mr Corbyn’s departure, but it a huge leap from there to imagine a new leader of the opposition sweeping to victory in a general election.
And even this assumes that the other 27 members would be willing to stand by for another couple of years while Britain argued with itself as the expense of gridlock in Brussels. Yes, even at this late stage Germany’s Angela Merkel would probably like Britain to stay. And a change of heart would be possible even after Britain had invoked Article 50. It is the politics that gets in the way.
Anything is possible
So pro-Europeans should give up? No. So as long as a British government does not trigger Article 50, Britain remains an EU member. The political forces unleashed by this referendum are unprecedented and unpredictable. It is far from fanciful to imagine that the next two years or so will see the complete recasting of the nation’s politics, quite possibly with the creation of a new, centrist, pro-European party. So those who want Britain to stay close to its own continent could think the unthinkable and work to make it thinkable.