Kit Juckes on Brexit: I Wouldn't Buy Sterling Pound Here(Audio)

worldwide growth. Our coverage continues here on Bloomberg Radio. The SMP five hundred index down sixty three points after the Brexit vote to two thousand forty nine, a drop there of three percent down. Industrials down five hundred eighteen points now at seventeen thousand, four hundred ninety three. That is a drop of two point nine percent, and has stacked down one hundred eighty three points, a drop of three points seven percent. The tenure yield one point five eight percent.

Gold surging fifty seven dollars an ounce of thirteen twenty, a gain of four and a half percent. Crude oil down four point four percent, down to twenty two barrel forty seven nightty right now on West Texas in media Crude, I'm Charlie Palli. That's a Bloomberg Business Flash you're listening to with on Bluebird Radio. In a historic vote, the British Electorate decides to exit the European Union and Prime Minister David Cameron decides to resign the premiership. Here to

tell us more is Kit Jukes. He is global head of Foreign Exchange Strategy for Associate A General. He is based in London and he can be followed on Twitter at Kit Jukes and Kit. I was gonna remember a couple of quotations from Richard this second, particularly that one about well England as the happy breed of men, this little world, this precious stone set in a silver sea. Is this going to be a Shakespearean moment for the

British people? H it needs to sens shakespeare a moment intense and in sense of making a political decision that will, you know, will reverberate for the next generation in terms of the relationship with Europe, which is what all UK politics is about. So I wouldn't understate the importance. Um, you know, at the moment it's it's the negotiating period.

So the uncertainty for the next couple of years and whether that has to go through I don't know, you know, anger, denial and then finally acceptance that we have to make the best of what we've decided to do. Um So, so I'm nervous about the anger denial phases of this particular negotiation, and I suspect that while the negotiators will take it slow. So so those are the things that

I worry about. But when when I get to the final deal, we will have a different relationship with Europe, and then we'll we'll see what Europe's relationship with itself looks like and we'll kind of take it from that. But yes, things have changed, tremendous volatility. I was here last night preparing for De break Asia Kit and you know, the first polls came out with him and I were still doing our show Yes to Afternoon, and the pound goes up and then all of a sudden the results

started coming in. Boom. It had its biggest drop in six years. Now, it's reached its lowest level since. Am I crazy to ask is it time to buy some pounds? I'm not buying any but but it's not crazy to ask when you're down. Here was my first year doing this, and we felt a lot further. We got to one oh five and five before the Plaza Accord came through and turn things around, but you had higher interest rates.

My problem with buying the pound at the moment is this period of uncertainty, Uncertainty about who's going to be in charge of the Conservative Party and therefore leading the negotiations, Uncertainty about how the negotiations negotiations go, along with my concern that the first thing people do is go slow, and also that in the anger denial phase of of of of negotiating this split, people might not play nicely initially they wouldn't have much incentive to do so so

and then and then during that period, you know, uncertain it's not good for markets, and uncertain is not good for economies. And although the UK economy is a small economy in the great scheme of things, that the global economy isn't exactly running fast enough for me to feel

good about things. So if if if the global economy was tootling along at three, the US was growing at two and a half and Europe was growing at two and the Chinese were having a good time, I'd be in a much better mood this evening than contemplating how dreadful it would be if the U S economy goes on slowing, kid Jukes, will Scotland hold another referendum to leave the United Kingdom? Um, the instinctive yes is yes.

When all prices are higher than this, that that that they'll they'll talk about it and they may decide to do it. But that did the economics of an independent Scotland, A separates Gobland and how they run their budget with the old price down here is pretty ugly for them. So I think that they'll be They'll not be in a hurry, but they'll spend some time looking at the principle.

So for the sake of argument, it's in two years time, the UK is most of the way through negotiations to leave Europe, and the old price is you know, a good bit higher. Uh, then I think the odds the old shift in favor just about the This means for the UK government bond market, because there's been a bit of a rally there as people guess that, Uh, the Bank of England is going to have to maintain a very easy monterrey policy. So that's one part of it.

And again our Bloomberg intelligence team has did some work saying how good the Remain vote would have been paving the way for a rate high. Do you agree with the UK Treasury their report yesterday that the mod the moderate path is what a three and a half percent hit to UK GDP, a severe shock would be more than six percent hit to g d P and how home prices down tempers. Yeah, So I'm working on the basis that whatever you thought UK growth would be for each of the next five years, kind of take half

a percent off that as you're working assumption. So if you thought we were growing at one and three quarters just slowing from two a bit like the US put one on a quarter down, so not less than one, not in a recession, but on average over the next five plus years while we go through this. So that's the right starting point now in that environment, if you you know, I could redo it in the US that the next move in monetary policy is to cut rates,

but not immediately. Um so maybe in twenty seventeen, I don't know, but the you know, if I looked at those numbers, I would that that would be my immediate con think, and if the pound were to fall further, I would still cut rates. Frankly, that wouldn't put me off. If I saw slightly higher inflation for a bit, fine, that's the currency acting as a acting as a support for the economy of setting something what's going on making us a little bit more competitive? Nothing wrong with that?

So um yes, so that that would be my my working assumption, Kit Jukes, give you about ten seconds. The city of London. What's the mood today? Pretty grim? Pretty grim? But I mean, you know, I mean there was a there was a band playing outside my office and everyone seemed happy. But people I was talking to nervous about

you know, what does this mean for jobs? You know we're not We're already bouncing back from the financial crisis now right, Well, Jukes, thank you so very much joining us from ground zero for that UK bregsit vote to pound at its lowest level since when Kit Jukes says he started in the business. He's global strategist at Society General. I'm Caffeine has along with Pim Fox and this is taking stock on Blueberg Radio. Coming up on taking Stock.

Will the British Parliament try to foil the Brexit vote? Even after the general election. Most MP's members of Parliament favor remain We've got details ahead