It’s as if Nothing Happened…Sorta
While the path of Brexit and its impact on the global economy remain significant sources of market uncertainly, investors have become increasingly bold in the assessment that any fallout will be contained. In particular, many global equities indices and corporate and high yield levels are better than where they were just before the surprise Brexit vote. Possibly more importantly, volatility has been mostly contained, with equity and fixed income vol lower, while general FX vol is only marginally higher. From a fundamental perspective, this sanguine view of Brexit appears stretched, with much of the fallout from the UK exit still to be felt on a global scale. In particular, while the timing of invocation of Article 50, which would begin the formal withdrawal process, is taking a longer path, this certainly does not mean there will not be implications on the global economy. Overall growth expectations have been reduced for the coming few years, with global expectations falling up to ½% in the upcoming year, while predictions of a recession in the UK abound. While the impact on US growth is expected to be relatively limited, Brexit will certainly not help the US break free from the current pattern of anemic growth that has been in place for the past several years. Better data from the US recently, particularly on the employment front, supports continued economic growth in the US, although slowing job gains also support the late stage nature of the current expansion.