Brexit Update: Does Brexit Really Mean Brexit?

The U.K. has a new Prime Minister – former Home Secretary Theresa May – who has committed her cabinet to pursue a divorce from the EU. With the government in London now falling inline with the mantra that “Brexit means Brexit,” is there no hope for a reversal of the June 23 referendum results?

In this Brexit Update, we tackle three questions:

  1. What is the big picture relevance of Brexit?
  2. Have the “next steps” of the Brexit saga become any clearer?
  3. What does the U.K. want and can it get it from the EU?

The global relevance of Brexit is that it will signal to the markets that stimulative fiscal policy is around the corner. To be clear, Brexit will not cause fiscal stimulus (at least not outside the U.K.).

To access the Geopolitical Strategy Special Report report entitled “Brexit Update: Does Brexit Really Mean Brexit?”, please click here.


Global Equities: No EPS Pulse

Brexit aside, what matters most for global equities is earnings growth, especially if the multiple expansion phase since 2012 is over.

The chart shows that the global PMI, industrial production and credit impulse are still signaling a challenging EPS growth outlook. This message is corroborated by the bond market. Anemic growth prospects, deflation/disinflation and deleveraging have pushed global bond yields to all-time lows. Under such a backdrop, a capital preservation mindset is still warranted. Continue to prefer global defensives to both early and late cyclicals.

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