Find out what Brexit could mean for the markets and how a hard or a soft exit from the EU could affect traders.
Now that the EU has approved the UK withdrawal agreement, the focus moves back to the UK and the vote in Parliament.
It looks like the Prime Minister Theresa May will push for a vote in Parliament on 11 or 12 December, with this vote preceded by a blitz of PR designed to ‘sell’ the deal to both the public and MPs of all parties. Her open letter to the nation in Sunday’s newspapers was the start of this. A measure of how keen she is to convince the country is seen in the reports of a possible head-to-head debate with Jeremy Corbyn on the subject, a remarkable move given how keen she was to avoid appearing on the debates prior to the 2017 election.
At present, however, the deal still looks unlikely to pass in Parliament. Too many MPs either viscerally dislike the deal, or are likely to vote it down as they follow party lines. Others argue that a renegotiation is possible, even at this late hour, but EU Commission president Juncker was very clear on this point at the Sunday press conference – no new deal is possible.
A common view has developed that if Parliament votes down the deal, then a situation analogous to the TARP vote in the US back in 2008 will follow. Markets, frightened by the prospect of the UK crashing out of the EU without a deal, will drop sharply, and this outbreak of panic will force Parliament to vote again and pass the deal. This view has merits, but I suspect it overstates the importance of Brexit to the wider world. Still, a run on sterling and UK bonds would concentrate minds, boosting the case for the deal to go through on a second try.
If the deal still fails to go through, we have a number of possible outcomes, as suggested by the Guardian:
It is not difficult to imagine the market reaction to all this. Sterling will slump, as will UK government bond yields and while this might be short-term positive for the FTSE 100, we would likely see more funds leave UK equities over the medium term.
This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.