Theresa May:
“The British people want this to be settled. They want a good deal that sets us on course for a brighter future. That deal is within our grasp and I am determined to deliver it,”
Today we saw the GBP spike higher as investors seem to believe the final stages of May’s deal negotiations are falling into place. Now the hard work resumes of convincing the Parliament.
The GBP spiked higher by 0.75% on the day, but seen on a longer-term chart it is a small move. The GBP is down over 10% versus the USD since April highs.
GBPUSD 1 month at the money volatility is down small from recent highs, but volatility is still very much elevated. This is all but a done deal it seems.
Below are a few important points worth revisiting when it comes to the Brexit soap opera.
The Deal
The Brexit deal is the most important deal for Britain in modern times. It will set out the terms for a separation of UK to depart from the EU on THE famous March 29th. This is the orderly exit and will be accompanied by a 21-month period where all parties are given time to adjust to the new situation. The most important factor is how future free trade agreement will look like, but those details will most probably take years to work out.
Now “QUE”?
The Parliament is not backing Theresa May, so the deal is complicated since May has no majority. There are many against the deal; pretty much all of the opposition Labour Party, the Northern Irish party etc. The border on divided Ireland is a huge factor that is discussed intensely.
The entire decision is going to be determined on a handful of votes in the Parliament.
What if?
If May loses, Labour will push for general elections, but there are many question marks regarding such an “event”.
Be sure to see pro-EU politicians grab such an opportunity to push for a second referendum. This is also a rather delicate situation with many unknowns.
There is also a real risk the UK falls out of the bloc in chaos should a deal be voted down. Imagine the confusion that would follow such an event with basic trade freezing up. There would be a mess ranging from financial contracts to probable food shortages. Such a chaos would probably be played by the politicians and the real blame game would commence.
Parliament vote?
Nobody knows when a Parliament vote could happen, but given the fact “they” take vacations on December 20th, the market expects something will/need to happen in December. There is an EU summit on December 13/14 worth watching.
The City (of London)
The confusion with regards to how the banks will need to operate will most probably continue, even despite a deal. There is very little clarity on banks future and any final trade “contract” risks taking years to put in place.
Source: Bloomberg
