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

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<v Speaker 1>Global business news twenty four hours a day at Bloomberg

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<v Speaker 1>This is a Bloomberg Business Flight from Bloomberg World Headquarters.

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<v Speaker 1>I'm Charlie Pellett. Stocks are tumbling the most since January,

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<v Speaker 1>joining a sell off in global risk assets on speculation

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<v Speaker 1>that the UK decision to leave the European Unional hamper

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<v Speaker 1>worldwide growth. Our coverage continues here on Bloomberg Radio. The

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<v Speaker 1>SMP five hundred index down sixty three points after the

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<v Speaker 1>Brexit vote to two thousand forty nine, a drop there

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<v Speaker 1>of three percent down. Industrials down five hundred eighteen points

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<v Speaker 1>now at seventeen thousand, four hundred ninety three. That is

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<v Speaker 1>a drop of two point nine percent, and has stacked

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<v Speaker 1>down one hundred eighty three points, a drop of three

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<v Speaker 1>points seven percent. The tenure yield one point five eight percent.

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<v Speaker 1>Gold surging fifty seven dollars an ounce of thirteen twenty,

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<v Speaker 1>a gain of four and a half percent. Crude oil

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<v Speaker 1>down four point four percent, down to twenty two barrel

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<v Speaker 1>forty seven nightty right now on West Texas in media Crude,

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<v Speaker 1>I'm Charlie Palli. That's a Bloomberg Business Flash you're listening

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<v Speaker 1>to with on Bluebird Radio. In a historic vote, the

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<v Speaker 1>British Electorate decides to exit the European Union and Prime

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<v Speaker 1>Minister David Cameron decides to resign the premiership. Here to

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<v Speaker 1>tell us more is Kit Jukes. He is global head

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<v Speaker 1>of Foreign Exchange Strategy for Associate A General. He is

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<v Speaker 1>based in London and he can be followed on Twitter

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<v Speaker 1>at Kit Jukes and Kit. I was gonna remember a

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<v Speaker 1>couple of quotations from Richard this second, particularly that one

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<v Speaker 1>about well England as the happy breed of men, this

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<v Speaker 1>little world, this precious stone set in a silver sea.

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<v Speaker 1>Is this going to be a Shakespearean moment for the

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<v Speaker 1>British people? H it needs to sens shakespeare a moment

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<v Speaker 1>intense and in sense of making a political decision that will,

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<v Speaker 1>you know, will reverberate for the next generation in terms

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<v Speaker 1>of the relationship with Europe, which is what all UK

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<v Speaker 1>politics is about. So I wouldn't understate the importance. Um,

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<v Speaker 1>you know, at the moment it's it's the negotiating period.

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<v Speaker 1>So the uncertainty for the next couple of years and

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<v Speaker 1>whether that has to go through I don't know, you know, anger,

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<v Speaker 1>denial and then finally acceptance that we have to make

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<v Speaker 1>the best of what we've decided to do. Um So,

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<v Speaker 1>so I'm nervous about the anger denial phases of this

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<v Speaker 1>particular negotiation, and I suspect that while the negotiators will

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<v Speaker 1>take it slow. So so those are the things that

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<v Speaker 1>I worry about. But when when I get to the

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<v Speaker 1>final deal, we will have a different relationship with Europe,

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<v Speaker 1>and then we'll we'll see what Europe's relationship with itself

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<v Speaker 1>looks like and we'll kind of take it from that.

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<v Speaker 1>But yes, things have changed, tremendous volatility. I was here

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<v Speaker 1>last night preparing for De break Asia Kit and you know,

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<v Speaker 1>the first polls came out with him and I were

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<v Speaker 1>still doing our show Yes to Afternoon, and the pound

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<v Speaker 1>goes up and then all of a sudden the results

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<v Speaker 1>started coming in. Boom. It had its biggest drop in

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<v Speaker 1>six years. Now, it's reached its lowest level since. Am

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<v Speaker 1>I crazy to ask is it time to buy some pounds?

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<v Speaker 1>I'm not buying any but but it's not crazy to

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<v Speaker 1>ask when you're down. Here was my first year doing this,

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<v Speaker 1>and we felt a lot further. We got to one

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<v Speaker 1>oh five and five before the Plaza Accord came through

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<v Speaker 1>and turn things around, but you had higher interest rates.

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<v Speaker 1>My problem with buying the pound at the moment is

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<v Speaker 1>this period of uncertainty, Uncertainty about who's going to be

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<v Speaker 1>in charge of the Conservative Party and therefore leading the negotiations,

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<v Speaker 1>Uncertainty about how the negotiations negotiations go, along with my

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<v Speaker 1>concern that the first thing people do is go slow,

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<v Speaker 1>and also that in the anger denial phase of of

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<v Speaker 1>of of negotiating this split, people might not play nicely

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<v Speaker 1>initially they wouldn't have much incentive to do so so

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<v Speaker 1>and then and then during that period, you know, uncertain

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<v Speaker 1>it's not good for markets, and uncertain is not good

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<v Speaker 1>for economies. And although the UK economy is a small

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<v Speaker 1>economy in the great scheme of things, that the global

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<v Speaker 1>economy isn't exactly running fast enough for me to feel

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<v Speaker 1>good about things. So if if if the global economy

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<v Speaker 1>was tootling along at three, the US was growing at

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<v Speaker 1>two and a half and Europe was growing at two

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<v Speaker 1>and the Chinese were having a good time, I'd be

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<v Speaker 1>in a much better mood this evening than contemplating how

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<v Speaker 1>dreadful it would be if the U S economy goes

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<v Speaker 1>on slowing, kid Jukes, will Scotland hold another referendum to

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<v Speaker 1>leave the United Kingdom? Um, the instinctive yes is yes.

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<v Speaker 1>When all prices are higher than this, that that that

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<v Speaker 1>they'll they'll talk about it and they may decide to

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<v Speaker 1>do it. But that did the economics of an independent Scotland,

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<v Speaker 1>A separates Gobland and how they run their budget with

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<v Speaker 1>the old price down here is pretty ugly for them.

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<v Speaker 1>So I think that they'll be They'll not be in

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<v Speaker 1>a hurry, but they'll spend some time looking at the principle.

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<v Speaker 1>So for the sake of argument, it's in two years time,

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<v Speaker 1>the UK is most of the way through negotiations to

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<v Speaker 1>leave Europe, and the old price is you know, a

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<v Speaker 1>good bit higher. Uh, then I think the odds the

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<v Speaker 1>old shift in favor just about the This means for

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<v Speaker 1>the UK government bond market, because there's been a bit

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<v Speaker 1>of a rally there as people guess that, Uh, the

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<v Speaker 1>Bank of England is going to have to maintain a

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<v Speaker 1>very easy monterrey policy. So that's one part of it.

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<v Speaker 1>And again our Bloomberg intelligence team has did some work

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<v Speaker 1>saying how good the Remain vote would have been paving

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<v Speaker 1>the way for a rate high. Do you agree with

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<v Speaker 1>the UK Treasury their report yesterday that the mod the

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<v Speaker 1>moderate path is what a three and a half percent

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<v Speaker 1>hit to UK GDP, a severe shock would be more

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<v Speaker 1>than six percent hit to g d P and how

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<v Speaker 1>home prices down tempers. Yeah, So I'm working on the

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<v Speaker 1>basis that whatever you thought UK growth would be for

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<v Speaker 1>each of the next five years, kind of take half

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<v Speaker 1>a percent off that as you're working assumption. So if

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<v Speaker 1>you thought we were growing at one and three quarters

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<v Speaker 1>just slowing from two a bit like the US put

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<v Speaker 1>one on a quarter down, so not less than one,

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<v Speaker 1>not in a recession, but on average over the next

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<v Speaker 1>five plus years while we go through this. So that's

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<v Speaker 1>the right starting point now in that environment, if you

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<v Speaker 1>you know, I could redo it in the US that

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<v Speaker 1>the next move in monetary policy is to cut rates,

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<v Speaker 1>but not immediately. Um so maybe in twenty seventeen, I

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<v Speaker 1>don't know, but the you know, if I looked at

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<v Speaker 1>those numbers, I would that that would be my immediate

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<v Speaker 1>con think, and if the pound were to fall further,

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<v Speaker 1>I would still cut rates. Frankly, that wouldn't put me off.

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<v Speaker 1>If I saw slightly higher inflation for a bit, fine,

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<v Speaker 1>that's the currency acting as a acting as a support

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<v Speaker 1>for the economy of setting something what's going on making

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<v Speaker 1>us a little bit more competitive? Nothing wrong with that?

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<v Speaker 1>So um yes, so that that would be my my

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<v Speaker 1>working assumption, Kit Jukes, give you about ten seconds. The

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<v Speaker 1>city of London. What's the mood today? Pretty grim? Pretty grim?

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<v Speaker 1>But I mean, you know, I mean there was a

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<v Speaker 1>there was a band playing outside my office and everyone

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<v Speaker 1>seemed happy. But people I was talking to nervous about

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<v Speaker 1>you know, what does this mean for jobs? You know

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<v Speaker 1>we're not We're already bouncing back from the financial crisis

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<v Speaker 1>now right, Well, Jukes, thank you so very much joining

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<v Speaker 1>us from ground zero for that UK bregsit vote to

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<v Speaker 1>pound at its lowest level since when Kit Jukes says

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<v Speaker 1>he started in the business. He's global strategist at Society General.

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<v Speaker 1>I'm Caffeine has along with Pim Fox and this is

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<v Speaker 1>taking stock on Blueberg Radio. Coming up on taking Stock.

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<v Speaker 1>Will the British Parliament try to foil the Brexit vote?

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<v Speaker 1>Even after the general election. Most MP's members of Parliament

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<v Speaker 1>favor remain We've got details ahead