Brexit negotiations have come up against yet another obstacle in the form of a hung parliament. Find out what that means for the markets and take a position with IG.

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Brexit: what's happened so far?

Following the UK’s vote to leave the European Union, the official two-year countdown to Brexit started on 29 March.

The timetable for the next couple of years is littered with events that could all have a substantial impact on negotiations. But it seems we’ve already stumbled at the first hurdle: Theresa May’s snap election – which was supposed to provide her with a significant mandate – resulted in a hung parliament. Before negotiations even begin, then, May has lost not only her controlling share of government, but also a reputation that would have bolstered her bargaining position with EU leaders.

May’s Brexit plan may have been vague, but in her twelve objectives for the imminent negotiations, she did confirm her intention to surrender the single market. Despite this, traders found reason to be optimistic: the promise of new global trading partners, a parliamentary vote on the final deal, and the pursuit of a ‘phased transition’ all offered a stability that was otherwise absent. 

But this plan has been upended by the results of the election. Now, May will have to satisfy both her own party and the opposition, which will no doubt result in a softer Brexit than the one she originally hoped for. How exactly this will pan out, or what exactly Labour leader Jeremy Corbyn expects, is unclear, and this ongoing uncertainty is bound to keep markets on edge. 

Still, this hung parliament hardly signals a dramatic shift from certainty to uncertainty. May’s intentions have long been written off as idealistic or unfeasible, and her reluctance to provide details (in order to best protect Britain’s interests, she has said) has left a lot of gaps to be filled. Plus, talks would only ever have come to an end if parliament was happy with the deal settled on by the government.

Markets to watch

Sterling will no doubt be at the centre of the conversation, as it’ll be susceptible to what are perceived by traders as successes and failures for either side of the negotiating table. How these successes or failures could manifest themselves – and how significant an impact they could have on the pound – will become clearer with time. Keep an eye on major pairs like EUR/GBP and GBP/USD, though bear in mind that Trumponomics may take centre stage as far as the dollar is concerned. 

Given its largely international focus, currency movements will also have a major influence on the FTSE 100. It has seen its momentum curtailed since the snap election, for example, as the resilient pound knocks its constituents’ overseas earnings. Likewise, the FTSE Mid 250 could fall victim to particularly harsh penalties levelled against the UK, though it’s surprised everyone since the start of 2017 with a gradual climb that even the second election hasn’t yet managed to reverse. 

Meanwhile, the news that Goldman Sachs, HSBC and UBS intend to move operations from London could be a sign of things to come. A number of listed companies may start to make similar decisions that could have a major impact on their share prices, and it will be up to the most astute traders to respond the moment they do. 

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Brexit news and analysis

Britain votes 'Leave'

More than 30 million people voted to leave the EU, with 'leave' winning by 51.9% to 48.1%. The difference was 1.3 million votes.

There was a significant regional variation in the vote: London, Scotland and Northern Ireland all backed ’remain’, while England and Wales opted to leave, with 53.4% and 52.5% of the vote respectively.

All in all, the vote revealed a deeply divided Britain: a fact which came to define the following months of negotiations, challenges and reprisals.

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