People are worried about the Brexit.
The worry, however, shouldn’t go too far according to Scott Brown, chief economist at Raymond James.
“To be clear, we shouldn’t expect a Brapocalypse,” he wrote in a note to clients Wednesday morning (which we should mention is entitled “A Breleif rally. Due for a Brounce? Broptimism!”).
“It’s not going to be Brarmageddon. The uncertainty will be a negative. The UK economy will be weaker, but the drop in the pound and lower interest rates should help to limit the damage.”
Brown believes that both the economic fundamentals that come along with a drop in the British currency and the aggressive policy response from the UK government to support the economy.
To the latter point, (soon to be former) British Prime Minister David Cameron has expressed desire to mitigate the damage as much as possible, while Bank of England chief Mark Carney has said the central bank will be “ready to provide more £250 billion of additional capital to its normal operations.” Additionally, Carney suggested an interest rate cut may be on the table to support economic activity in the UK.
This aggressive policy response, coupled with the slow-moving process of the Brexit, may make the initial reaction look worse than the long-run implications despite some bumps along the way.
This is especially true for the US, said Brown, which saw one of the largest drop-offs for stocks in the history of the Dow Jones Industrial Average, but also has very limited direct exposure to the UK economy.
“By itself, Brexit should have only a tiny impact on the U.S. economy, but it’s not going to help global growth,” said Brown in his note.
“The bigger danger would be a panic. There is some fear that the EU may break apart or the UK may break apart, but the Brexit fallout is very unlikely to become a fully formed financial crisis.”
So everyone brelax.
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