Europe Stocks Could Plunge 24% in Brexit, Stress Study Shows
European equities could lose about a quarter of their value in the immediate aftermath of a U.K. secession from the European Union, a study testing the effects of Brexit showed.
Risk-modeling firm Axioma Inc. found that stocks would take the hardest hit among asset classes when it simulated the effects of a “Leave” vote on a hypothetical portfolio composed of 54 percent bonds, 41 percent shares and the rest in alternative investments. Pound-denominated investments would slump 10 percent, more than those in euros, the model showed.
Equities have remained relatively calm in the run-up to the June 23 referendum, even as volatility for Britain’s currency has surged to its highest level since 2009. While U.K. stocks have become among the best performers in Europe this year amid a weaker pound and a rebound in miners, they are also the most at risk, according to Axioma.
“There is an assumption that Brexit is not going to happen — if it happens, no one is mentally fully geared up for it yet,” Philip Jacob, one of the researchers who authored the report, said in a phone interview from New York. “We’ll see the equity market really, really move. ”
To simulate the potential impact of a Brexit, Axioma analyzed the market response to past events including the multi-year European debt crisis and Scottish referendum. It didn’t define the why or how of the likely reaction. The stress test only captures the short-term market impact, not structural changes that an exit would have on the economy in the longer term, the risk-management firm said.
The report comes as polls increasingly point to a close race, with some recent surveys even showing the “Leave” camp pulling ahead. Still, the FTSE All-Share Index has almost erased its annual losses, while the Stoxx Europe 600 Index remains down 6.7 percent.
U.S. investors may be more vulnerable to a fallout from a vote to exit. They’ve increased their allocation to British equities since May of last year, according to a separate report by Nasdaq OMX Group Inc.’s advisory-services unit. Those in the U.K., on the other hand, have been the biggest sellers, it showed.
Crude Oil Hits $71.34 After Saudi Largest Oil Facilities Were Attacked
Brent Crude Oil Rises to $71.34 Following Missile Attack on Saudi Largest Oil Facilities
Brent crude, against which Nigerian oil is priced, jumped to $71.34 a barrel on Monday during the Asian trading session following a report that Saudi Arabia’s largest oil facilities were attacked by missiles and drones fired on Sunday by Houthi military in Yemen.
On Monday, the Saudi energy ministry said one of the world’s largest offshore oil loading facilities at Ras Tanura was attacked and a ballistic missile targeted Saudi Aramco facilities.
“One of the petroleum tank areas at the Ras Tanura Port in the Eastern Region, one of the largest oil ports in the world, was attacked this morning by a drone, coming from the sea,” the ministry said in a statement released by the official Saudi Press Agency.
It also stated that shrapnel from a ballistic missile dropped near Aramco’s residential compound in Eastern Dhahran.
“Such acts of sabotage do not only target the Kingdom of Saudi Arabia, but also the security and stability of energy supplies to the world, and therefore, the global economy,” a ministry spokesman said in a statement on state media.
Oil price surged because the market interpreted the occurrence as supply sabotage given Saudi is the largest OPEC producer. A decline in supply is positive for the oil industry.
However, Brent crude oil pulled back to $69.49 per barrel at 12:34 pm Nigerian time because of the $1.9 trillion stimulus packed passed in the U.S.
Market experts are projecting that the stimulus will boost the United States economy and support U.S crude oil producers in the near-term, this they expect to boost crude oil production from share and disrupt OPEC strategy.
A Loud Blast Heard in Dhahran, Saudi Arabia’s Largest Crude Oil Production Site
Loud Blast Heard in Dhahran, Saudi Arabia’s Largest Crude Oil Production Site
Two residents from the eastern city of Dhahran, Saudi Arabia, on Sunday said they heard a loud blast, but they are yet to know the cause, according to a Reuters report.
Saudi’s Eastern province is home to the kingdom’s largest crude oil production and export facilities of Saudi Aramco.
A blast in any of the facilities in that region could hurt global oil supplies and bolster oil prices above $70 per barrel in the first half of the year.
One of the residents said the explosion took place around 8:30 pm Saudi time while the other resident claimed the time was around 8:00 pm.
However, Saudi authorities are yet to confirm or respond to the story.
Brent Crude Oil Approaches $70 Per Barrel on Friday
Nigerian Oil Approaches $70 Per Barrel Following OPEC+ Production Cuts Extension
Brent crude oil, against which Nigerian oil is priced, rose to $69 on Friday at 3:55 pm Nigerian time.
Oil price jumped after OPEC and allies, known as OPEC plus, agreed to role-over crude oil production cuts to further reduce global oil supplies and artificially sustain oil price in a move experts said could stoke inflationary pressure.
Brent crude oil rose from $63.86 per barrel on Wednesday to $69 per barrel on Friday as energy investors became more optimistic about the oil outlook.
While certain experts are worried that U.S crude oil production will eventually hurt OPEC strategy once the economy fully opens, few experts are saying production in the world’s largest economy won’t hit pre-pandemic highs.
According to Vicki Hollub, the CEO of Occidental, U.S oil production may not return to pre-pandemic levels given a shift in corporates’ value.
“I do believe that most companies have committed to value growth, rather than production growth,” she said during a CNBC Evolve conversation with Brian Sullivan. “And so I do believe that that’s going to be part of the reason that oil production in the United States does not get back to 13 million barrels a day.”
Hollub believes corporate organisations will focus on optimizing present operations and facilities, rather than seeking growth at all costs. She, however, noted that oil prices rebounded faster than expected, largely due to China, India and United States’ growing consumption.
“The recovery looks more V-shaped than we had originally thought it would be,” she said. Occidental previous projection had oil production recovering to pre-pandemic levels by the middle of 2022. The CEO Now believes demand will return by the end of this year or the first few months of 2022.
“I do believe we’re headed for a much healthier supply and demand environment” she said.
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