Research Team at RBC Capital Markets, suggests that the Brexit has introduced the very real possibility that this morphs into a domino effect across the region.
Key Quotes
“So it will be a very long time before all of the potential volatility in Europe is behind us, which means we are likely to be well into 2017 before the Fed has a clear path to continue tightening even if the economy remains solid.
Accordingly, we officially changed our Fed call and are now looking for the next hike to come in Q3 2017 at the earliest. The one factor (maybe the only factor) we can see spooking the Fed into hiking rates at this point is an inflation scare. Though the extent to which inflation would need to rise to create such a scenario seems like a low probability event at present. Note that even with domestic sensitive inflation running north of 3% y/y, the Fed has shown little concern in this regard. And if the dollar strengthens materially from here, the rhetoric out of this Fed will undoubtedly be one that reiterates disinflationary risks.”
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