Flash Note 07/10/2016 GBP crash is bad news for the EUR (Reduce

Flash Note
07/10/2016
Alex Fusté
@AlexfusteAlex
alex.fuste@andbank.com
GBP crash is bad news for the EUR (Reduce
exposure)
The recent weakness in the sterling pound is also bad news for
the euro zone (and thus the euro), a region whose own recovery
shows signs of ebbing.
The biggest loser after this morning “flash crash” in the pound
could be the euro itself, and I fear that the recent move could
have legs (the fact the GBP exchange rate could fall so hard
without generating automatic buying responses says much
about confidence in the unit).
Why do I remain cautious with the euro and I recommend to
increase exposure to the greenback in the euro-denominated
portfolios?
If global trade were stronger, Eurozone economies could easily
handle a downturn on their troublesome western fringe; alas,
exports from the single currency area are now shrinking, with
exports over the last year falling by -3.5% by value and 1% by
volume.
Therefore, a -20% drop in Eurozone exports to the UK (which is
the most likely scenario following the drop in the GBP and Prime
Minister Theresa May own words earlier this week saying "she
will prioritize sovereignty and control of immigration in exit
negotiations with the European Union, over and above UK
mercantile interests‎") would slow even further the capacity of
the external sector to continue fueling the recovery in the euro
area.
Este documento ha sido realizado por Andbank, principalmente para su distribución interna e inversores profesionales. Este
documento no debe ser considerado como consejo de inversión ni una recomendación de compra de ningún activo, producto
o estrategia. Las referencias a cualquier emisor o título, no pretenden ser ninguna recomendación de compra o venta de
dichos títulos.
‎ dd into the mix a troubled banking sector, monetary policy
A
problems, growing political uncertainty ahead of Italy’s
December referendum over constitutional reform and next
year’s national elections in France and Germany, and the last
thing the Eurozone needs is a collapse in one of its most reliable
sources of demand, namely, exports to the UK.
Kind Regards
Alex Fusté
Chief Economist
Andbank
Este documento ha sido realizado por Andbank, principalmente para su distribución interna e inversores profesionales. Este
documento no debe ser considerado como consejo de inversión ni una recomendación de compra de ningún activo, producto
o estrategia. Las referencias a cualquier emisor o título, no pretenden ser ninguna recomendación de compra o venta de
dichos títulos.