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How will the uncertainty surrounding Brexit affect the markets?
The fallout of the past few weeks of votes and debates has already had an effect on the markets. The pound spiked against the euro and the dollar after the vote to rule out no deal on 13 March – having initially slumped following the second defeat of the prime minister’s deal. Meanwhile, the euro fell against the dollar after EU leaders agreed to extend article 50 until 12 April.
Now the departure date has been extended, but the prime minister’s deal has been defeated once more, uncertainty will likely return to the markets. This is because it remains to be seen whether a final withdrawal deal is possible. At this point, a solution is dependent on the coming days and weeks of debate between Theresa May, British lawmakers and European leaders.
We could see the price movements of currency pairs stagnate if nothing new is agreed between the respective parties. But, if a deal was to be secured in the immediate future – whatever form it might take – British and European indices and stocks could react favourably.
What's next for Brexit?
There will be another series of indicative votes on Monday 1 April to follow those that took place on Wednesday 27 March. These votes could perhaps highlight more clearly what course of action British legislators would prefer – especially now that the prime minister’s deal has been defeated in a third vote.
Whatever the final outcome, a decision will have to be made by 12 April, which stands as the legal deadline for the UK leaving the EU. If this date arrives with no solution for progression in place, the UK could very well leave without a deal.
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Markets to watch during Brexit
As ever in times of uncertainty, investors look to gold. After experiencing a spike following the initial referendum in June 2016, gold’s price has largely settled over the last few years. That is not to say that it couldn’t spike again, especially given the uncertainty surrounding the next steps for the UK’s departure.
The effect on shares since the Brexit referendum has been mixed. Some companies have benefitted from a weaker pound and improved economic outlook, and others have struggled. For the most part, the FTSE 100 has been volatile since June 2016, with the effects of Brexit as far as individual securities are concerned quite varied.
Sterling fell against the euro after the referendum result was announced. However, the EUR/GBP pair maintained a steady rate of between lows of 0.87 and highs of 0.90 from December 2017 to the beginning of January 2019. Immediately following the defeat of the government’s departure agreement on 15 January, the pound entered a strong recovery. What will happen in the coming days and weeks remains to be seen, making EUR/GBP a key pair to watch.
The FTSE 100 and FTSE Mid 250 both rose over the course of 2017, thanks to weak sterling performance and an improving UK economy. However, in 2018 both were volatile as a result of sell-offs on global equity markets, and the increasing uncertainty surrounding Brexit negotiations and the proposed deal. The trading relationship with Europe is critical to many firms’ future earnings, so indices are very likely to be affected by the final outcome of Brexit, whatever that might be.
Brexit: what are the options?
Time is running out for the prime minister to secure a deal, though several options remain on the table
The eight indicative votes that were held on 27 March highlighted MP’s favoured options for Brexit. While none was able to get an outright majority, the three most popular were a confirmatory referendum, leaving the EU but retaining membership of the customs union, and Labour’s alternative plan (which only one Conservative legislator voted for). The votes with the most cross-party support were common market 2.0, a confirmatory referendum, leaving the EU with customs union membership, and revocation to avoid no deal. Since no vote got a majority, there will be another round of indicative votes on Monday 1 April.
Extending article 50
An extension to article 50 would allow more time for a final deal to be negotiated and tweaked to give it the best chance of assent in the Commons. However, any extension to article 50 requires unanimous approval by the remaining 27 EU members states – meaning that it has become a powerful political bargaining chip.
Revoking article 50
Another option as far as article 50 is concerned is for the UK to revoke it. The European Court of Justice (ECJ) has ruled that the UK can do this unilaterally, meaning that the decision to do so remains entirely at the UK’s discretion.
Fourth vote on the prime minister’s deal
Although it has already been defeated three times, Theresa May could bring her deal back for a fourth vote at some point in the future. Whether another vote on her deal will take place depends on how different the deal is to its three failed predecessors; and its success will depend on whether Labour, the DUP, and the prime minister’s own Eurosceptic MPs will back it.
Third vote on the prime minister’s deal
After two already-humiliating defeats, Theresa May is ready to try for a third time to get her deal through the house. This third meaningful vote is expected in the week beginning 18 March.
This third vote has been suggested in light of European leaders’ sentiments that there is no more room for negotiation, and that May’s deal is the only agreement on the table at this stage. With 29 March still set as the default departure date, it remains to be seen whether a third vote on the prime minister’s deal will yield more fruitful results than its two predecessors.
While MPs have voted to reject no deal, the result is not legally binding on the EU. This means that no deal remains the legal default, with European Commission members making clear that it will remain on the table unless an agreement is reached.
What is clear from the result of the vote on 13 March is that no deal is regarded by a majority of MPs as an unattractive option since it could be extremely detrimental to British businesses.
Delaying or revoking article 50
Now that MPs have decided that they want to avoid a no-deal departure, another vote will be held on 14 March. This vote will ask MPs if they want to ‘seek a limited extension to article 50’. If passed, Theresa May will have to return to the EU to request that they bring forward the necessary legislation in order to change the current departure date from 29 March.
Another option as far as article 50 is concerned is for the UK to revoke it. The European Court of Justice (ECJ) has ruled that the UK can do this without the consent of other EU nations, meaning that the decision to do so remains entirely at the UK’s discretion.
When will Brexit happen?
The current and official date for the UK's departure is 12 April 2019.
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1 For forex based on number of primary relationships with FX traders (Investment Trends UK Leveraged Trading Report released August 2018).
2Negative balance protection applies to trading-related debt only, and is not available to professional traders.