Brexit puts markets in 'post-central bank' world, expert says

Brexit puts markets in 'post-central bank' world, expert says

25 六月 2016, 08:17
Jiming Huang
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As markets try frantically to parse Britain's exit from the European Union, they should look toward politicians, not just to central banks for the answer, experts told CNBC's "Squawk on the Street" on Friday.

"I think we've moved to a post-central bank environment," said Jeffrey Kleintop, chief global investment strategist at Charles Schwab. "For the past five or 10 years, we've looked to central bankers to guide us out of these shocks. I think this time, the focus moves to politicians."

British citizens voted Thursday to depart the European Union, leaving British trading partners worried about regulatory and political volatilityas Prime Minister David Cameron announced his intention to resign by October.

European Central Bank chief Mario Draghi attends the Committee on Economic and Monetary Affairs at the EU headquarters in Brussels on June 21, 2016.

The Bank of England responded that it was well-prepared with "substantial liquidity" for a period of uncertainty, while the European Central Bank said it would continue to ensure price and financial stability in the euro area.

But even a central bank's main tool — interest rates — has its limits, saidBill Gross, of Janus Capital.

"I have a sense that the ECB is going about as far as it can in terms of negative interest rates," Gross said. "Insurance companies are hurting, pension funds are hurting, the average saver is hurting and that's part of the reason, really, for this sort of mini-revolt here in terms of Brexit last night." 

Indeed, Gross said the euro is likely to stay weak due both to ECB President Mario Draghi and to political unrest that encourages "non-growth-enhancing policies" that will "roil markets for some time to come."

"The euro, going forward, shouldn't be strengthening, if anything because of Draghi and if anything because of the dysfunctional nature of the EU family before Brexit," Gross said. "And now it's even worse afterward. So the euro is not a strong currency. "

While Gross didn't feel the EU was necessarily at risk, he said that there was a chance that established policies like free trade and immgration could move in reverse if marginal countries decided to follow Britain and bid to leave the bloc.

"This successful Brexit is a danger to risk assets if only because it endangers the established politics and the established economic policies," Gross said. "Those that voted to leave are basically voting for a rather populist theme, which to a certain extent are deflationary: I'm talking about restricting trade, I'm talking about slowing immigration and I'm talking about even at the edge, raising taxes."

Art Cashin, UBS director of floor operations at the New York Stock Exchange, likened the Brexit vote to the rise of U.S. presidential hopefuls like Donald Trump and Bernie Sanders, who also have taken stabs at existing free trade policies. 

"Betting against the ruling class is becoming a global event," Cashin said. "And it may in fact be the first wedge in maybe not blocking, but certainly slowing down the sense of globalization that we've had. I think people have said, 'Enough, I want my own little space here, I want to be able to make my own decisions.'"

Still, Cashin doesn't completely discount the power of the U.S. central bank, and said he'll wait to hear from Fed Chair Janet Yellen on Brexit.

"There's more stuff to come here," Cashin said. "It's somewhat worrying." 

Cashin said the effects of Brexit will take days or weeks to be thrashed through, a thought echoed by Kleintop who said this shock was not a "rip the Band-Aid off" type of event, but rather, would take three to four months to shake out. While the idea of relying on politicians may worry some, Kleintop said the upside is that politicians have to define their mandates and choose their responses.

"I think investors are better to stay on the sidelines and look for opportunities," Kleintop said.

He dismissed Friday's flight to safe haven trades, like gold, and said that more opportunities may reveal themselves to investors who wait a little longer.

"We don't think investors should be doing anything this morning," Kleintop said. "Hopefully they own some of those safe havens that buffer portfolios in times of stress, like Treasurys, like even cash or gold, in their well-diversified portfolio." 

 

By CNBC 

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