The market had increasingly treated the risks from the U.K. vote to exit the European Union (EU) as a negative local economic growth shock, affecting mainly Britain and Europe, but one that was likely to drive global central banks to ease further, Goldman said in a note on Monday. That’s driven yield-chasing fund flows back into both stocks and bonds, it noted, increasing the risks of a quick reversal.
“Markets have become very dovish relative to what central banks might deliver and against the current macro backdrop,” it said. “Bonds could sell off sharply as a result of central bank disappointment, positive inflation and data surprises and/or illiquidity, which would likely drive weakness in equities and other risky assets, at least initially.” FULL REPORT
