Brexit: what's next for the markets?
For all the obstacles that have been placed in her way, Theresa May has made good on her promise to trigger article 50 following the UK’s vote to leave the European Union. The two-year countdown to Brexit started on 29 March.
The timetable for the next couple of years is littered with events that could have a substantial impact on negotiations. But there is a pressing concern in the short term: European Council president Donald Tusk has held firm that the council won’t be available for discussions until June. The UK government – for whom every month of negotiating time is valuable – no doubt hopes this is just another example of the mind games that have come to denote the past few months.
May has already laid out twelve objectives for the imminent negotiations, and in doing so confirmed her intention to surrender the single market. Despite this, traders have found reasons to be optimistic: the promise of new global trading partners, a parliamentary vote on the final deal, and the pursuit of a ‘phased transition’ could all offer a stability that has otherwise been absent.
Still, ongoing uncertainty is bound to keep markets on edge. Many of May’s plans have been written off as idealistic or unfeasible, and her reluctance to provide details (in order to best protect Britain’s interests, she has said) leaves a lot of gaps to be filled. Plus, talks can only come to an end further down the line if parliament is happy with the deal settled on by the government: the Supreme Court’s ruling in late January means MPs ultimately have the final say.
May’s diplomatic concerns are now likely to be compounded by her feud with Scottish first minister Nicola Sturgeon, who has announced her intention to pursue another independence referendum. Such a division is not only likely to distract from May’s central focus, it’s also bound to put added pressure on a pound in which investors are losing faith.
Markets to watch
Sterling will no doubt be at the centre of the conversation, so keep an eye on major pairs like GBP/USD and EUR/GBP. Bear in mind, of course, that Trumponomics will take centre stage as far as the dollar is concerned for the next few months. Given its largely international focus, currency movements will also have a major influence on the FTSE 100. It fell in the immediate aftermath of May’s speech, for example, as the boost in the pound knocked UK companies’ overseas earnings.
Meanwhile, the news that Goldman Sachs, HSBC and UBS intend to move operations from London could be a sign of things to come. Expect a number of listed companies to make similar decisions that could have a major impact on their share prices.