Brexit — Now What?

U.S. Review

The Factory Sector Is Fragile While Housing Stays Solis

• The U.S. housing market is on solid ground heading into the busy summer selling season, according to home sales data released this week. Data still supports our expectation that housing will remain a bright spot for the U.S. economy in 2016.
• Durable goods orders point to continued weakness in business investment this year. The factory sector had been slowly making its way out of the woods as headwinds from sluggish global demand, the surge in the U.S. dollar and weak corporate profits began to wane. Now they face the fallout from the UK referendum.

Global Review

Brexit—Now What?

• The financial market reaction to the unexpected Brexit vote has been violent. The UK economy likely will bear the brunt of most of the direct effects of Brexit, with investment spending in the UK likely to take a major hit due to uncertainty. A modest recession in the UK seems increasingly likely.
• In our view, the indirect effects of Brexit on the rest of the world are more important than the direct effects. Europe has been integrating economically as well as politically for 50 years. Will globalization now go into reverse?

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