Markets Brace for Brexit Day
The pound is weak, and British stocks have never been cheaper across the board, but we got there in the end. It’s Brexit Day, at last, either the beginning of the end for markets or the start of something special!
BoJo’s hard-fought Withdrawal Agreement got the go-ahead on Wednesday from Brussels, but new terms of future trade between Britain and the European Union (EU) are still all to play for. Those, ultimately, will have the biggest hand in how highly stock markets value British companies going forward relative to global peers. So, after the Prime Minister’s 11 p.m. Downing Street light show, the true fate of UK investments will be negotiated in a strange 11-month transition period.
Getting a free trade deal is top of the agenda. Europe is the customer for 49% of all Britain’s products and services, and the seamless flow of those products and services is not a given right. Boris will have to haggle for it. Otherwise, businesses will pay costs at the border, hurting investors, and making new trade parleys with the rest of the world ever more critical when “freedom” is secured in 2021. It all begs one existential question for market players, “which side will come out on top at the negotiating table?”
The whole point of the European Union is to pull together the bargaining power of multiple nations. And even though Brexit is officially booked in for the end of these 11 months, the UK must still comply with all the EU laws, laws it no longer has a say in.
Technocrats in Brussels will take their sweet time mulling over British propositions, but the clock is ticking for Boris. If a good deal isn’t secured by December 31st, he’ll either settle for a bad one, or a three-year delay will be triggered. In other words, a three-year extension of Britain’s captivity!
This may explain why British currency pairs are so heavily short-sold by the Invstr community at around 25% of open trades. Investors are keeping their British exposure light. However, we’re also talking about a global economic powerhouse, a skilled workforce, and a kit of excellent companies. It’s those bulls keeping the country’s macro instruments some of the most heavily followed on Invstr. Discounts like this don’t come around often!