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Prime Minister Boris Johnson said on Thursday that there was "a
strong possibility" Britain and the EU would fail to secure an
agreement.
Morgan Stanley sees shares of UK banks falling 10% to 20% in a
"no deal" scenario, given there is a higher chance the Bank of
England would cut interest rates into negative territory.
The U.S. investment bank said insurance, real estate and
housebuilding stocks were also at risk.
"A no-deal Brexit outcome would represent an unexpected surprise
to markets, however the negative impact would be cushioned by an
otherwise positive global outlook," the bank's equity
strategists, led by Graham Secker, said in a note.
Investment banks have been cutting the chances of a UK-EU trade
deal in recent days while bookmakers slashed the odds to 40%
after leaders failed to break an impasse in talks.
A similar trend was seen in betting markets with odds of Britain
failing to agree a deal rising to 61% on Friday, up from 53% the
day before, according to punters betting on the Smarkets
exchange.
Morgan Stanley sees the euro climbing to 0.95, a 4% rise from
current levels, against the pound under a no-deal scenario.
Sterling slipped 0.5% against the U.S. dollar and UK banking
stocks dropped 3%-4% on Friday morning on Brexit jitters.
For graphic of UK stocks since Brexit vote:
https://fingfx.thomsonreuters.com/
gfx/buzz/qzjvqdeggpx/Pasted%20image%201607680042445.png
(Reporting by Thyagaraju Adinarayan; Editing by Iain Withers,
Robert Birsel)
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