Brexit’s Fallout...When Will VR Get Big?...Euro 2016's Final Four

Insights on markets, industries and the global economy [Goldman Sachs] [BRIEFINGS] July 05, 2016 Brexit: Assessing the Fallout As the UK's vote for Brexit reverberates across global markets, investors and policymakers are seeking to manage the repercussions. In the latest episode of our podcast, Exchanges at Goldman Sachs, Huw Pill, chief European economist of Goldman Sachs Research, discusses how his team is modeling the risk of economic slowdowns on the back of the UK's decision to leave the European Union. He expects European leaders to draw from their experience during the financial crisis to contain the spillover across the continent. For example, rather than tightening fiscal budgets and relying on central bankers to spur growth, governments may take more proactive steps to counter the slowdown in investment that is likely to come with political and economic uncertainty. "Monetary policy will do more, but to some extent, the heavy lifting on sustaining Euro-area demand will less come from the ECB and more come from the fiscal authorities," says Pill. [Listen to podcast] [Subscribe on iTunes] SHARE: [twitter] [facebook] [LinkedIn] [email] Midyear Economic Outlook: Global Growth, with Rising Risks We checked in with Goldman Sachs' Chief Economist Jan Hatzius for his post-referendum take on the 2016 global economic outlook. While Brexit and China are likely to weigh on growth in the second half of the year, Hatzius expects the drag from financial conditions to abate in the US and commodity-dependent economies such as Brazil and Russia to see some degree of stabilization, altogether keeping global economic growth steady at a 3%-3.5% rate. More midyear outlooks: see what's ahead for [Europe] and [emerging markets]. [Watch global outlook] SHARE: [twitter] [facebook] [LinkedIn] [email] Virtual and Augmented Reality Are Here -- But When Will They Get Big? Last week, Goldman Sachs Research hosted its first-ever Virtual and Augmented Reality Day in New York City, bringing together a range of companies including IMAX, Jaunt and Atheer. Participants sampled the latest in games, goggles and other gear and discussed key trends poised to shape the VR/AR industry over the next several years. The following are some of the key takeaways from the event: - The general consensus was that mobile will drive adoption of virtual reality technology in the near-term, though more robust platforms will eventually become widespread. Companies focusing on augmented reality were optimistic about their potential in specific markets like healthcare, industrials and manufacturing, where their technology could free up doctors from paperwork, highlight field conditions to oil workers and more. - There were mixed views on how quickly VR/AR will enter the mainstream -- from more moderate adoption over the next few years to explosive growth driving products off the shelves and out of stock. - Many participants acknowledged that these technologies are still too expensive for the average consumer, with one speaker comparing today's head-mounted displays to the first "brick" mobile phone in terms of cost, functionality and ease of use. The bottom line: "While still in their infancy, we continue to believe that virtual and augmented reality will become the next big computing platforms, redefining how we interact with people, applications and devices," said Goldman Sachs Research's Heather Bellini. [Read VR/AR primer] [Watch video] SHARE: [twitter] [facebook] [LinkedIn] [email] Euro 2016: Modeling for Surprise This year's European Football Championship in France has had its share of surprises. At the start of the tournament, few would have picked Wales to advance to the semifinals -- indeed, Goldman Sachs Research's model, which takes into account the entire history of mandatory international matches since the first European championship in 1958, gave the Dragons only a 2.7% chance of reaching the semifinals. Yet such is the challenge of applying mathematical predictions to an unpredictable game. This week will give our economists' models another test as the two teams they give the highest probability of winning the tournament -- Germany and France -- face each other in Marseille. Odds are that the winner of that match will go on to win the championship, but the tournament so far has shown ample evidence of teams defying the odds. [Read report] SHARE: [twitter] [facebook] [LinkedIn] [email] Briefly... on the Municipal Bond Market In light of recent credit stresses in the bond market, Kevin Willens and Jeffrey Scruggs, co-heads of the Public Sector and Infrastructure Financing Group in the Investment Banking Division, shine a light on the municipal bond market, why investors have been flocking to it and why issuers are increasingly partnering with private enterprises. After news of credit stresses and budget impasses in state and local governments, what are the implications for investors and residents? Jeffrey Scruggs: Despite recent headlines, the default rates in the overall muni market are still relatively low. Overall yields, although at historic lows, are relatively attractive compared with other fixed-income investments given that munis are generally tax-advantaged. Investor flows into municipal bond mutual funds have been positive for 39 consecutive weeks. But much of the new issuance by city, state and local governments has been to refinance existing debt at a lower rate, so the net new supply of muni bonds has been relatively low. A major hurdle for new issuance is that governments, which are reluctant to raise taxes to pay for new projects, are also facing rising healthcare and pension expenses that are constraining their budgets. If costs are a constraint for issuers, how are they addressing that? Kevin Willens: We are seeing governments increasingly partner with private companies to get capital, private-sector expertise and cost savings. Historically, a public-sector authority would issue bonds and assume all the costs and risks of an infrastructure project, often running into delays and going over budget. Under the public-private partnership model, the private entity assumes some of the financial, construction and ongoing maintenance risks in the project. We're seeing this happen in projects to build toll roads and bridges, for example, or with universities that want to focus investing in their core academic buildings but want to partner with private companies to build and manage their dormitories. From an investment banking perspective, we are also seeing more mergers-and-acquisitions activity for nonprofit healthcare companies as the industry -- faced with pricing pressures from the changing healthcare environment -- consolidates to create efficiencies. Goldman Sachs Media Highlights Caixin - July 4 [Mark Schwartz op-ed: "The Need to Seize the Moment on Financial Reforms"] CNBC - June 27 [Kathy Matsui on Japanese policy options post-Brexit vote] (2:33) Bloomberg - June 28 [Jami Rubin discusses pharma innovation, R&D productivity and pricing] (5:59) CNN Money - June 29 [Goldman Sachs named among the most attractive employers for business students globally by Universum] Bloomberg - June 29 [Zach Pandl shares findings from his report, "Where Have All the Good Men Gone," on declining male participation in the US labor force] (3:39) Bloomberg - June 30 [Goldman Sachs and other companies lend support to White House initiative to aid Syrian refugees] [Subscribe] The data provided in this newsletter is for information purposes only and should not be construed as investment or tax advice nor as a recommendation to buy, sell, or hold any particular security. 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