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21 December 2018

Santa Rally may not deliver as ‘No Deal’ Brexit odds increase

As embattled Prime Minister Theresa May’s fight for a Brexit deal continues, James Andrews, Director - Head of Investment Management, predicts a volatile festive season for markets

We now reside in much the same place we started: facing the absolute possibility of a hard exit from the European Union (EU). Prime Minister Theresa May survived last week’s no confidence vote and has been back to challenge the EU negotiators in Brussels.

Not only has Mrs May had to go back to Belgium with a futile mandate, she has now conceded her desire to run for the top spot in 2022. Although the details remain unclear as to whether she will even stick around after the Brexit deal (or lack of), her promise to leave, once her mission is complete, highlights the desperation in her last clinch of power, while exemplifying the out-and-out lack of confidence in her ability to run the country outside of Brexit. She will stay for the time being, she says, but what happens next?

The EU has continued to take a hard stance and as French President Emmanuel Macron put it on Friday (14th December): “Today we have a negotiation already, and this is the only possible agreement and a good one, so if to speculate on what we would do, should not be a topic for us. Today is clearly for the British parliament to clearly take a stance on the agreement negotiated by Theresa May and her team and the EU to purely say whether they accept this agreement.”

Sebastian Kurtz, the Austrian Chancellor, gave May some credence for the fight she is putting up but made it clear the odds are not in her or Britain’s favour:

“I think Theresa May was a tough negotiator in the meeting and made her point very clear. And on the other side the EU27 are united, which is good, and were able to make our point clear.”

Given the EU does not at this stage look like offering the option of an alternative deal, the options that therefore seem to remain are: a) her deal does not pass through the delayed parliamentary vote and the UK exits without a deal, b) the deal goes through and the UK exits with the threat of the perpetual back-stop arrangement hanging over us, or c) the Labour party triggers a vote of no confidence in the government and seizes its moment to revoke Article 50.

The Pound continues to hover around the $1.25 and €1.11 levels. We continue to expect a fall in the Pound should a hard Brexit materialise, while a strong bounce could be seen should we somehow remain, with UK equity markets likely to also follow suit. As the odds of a no-deal Brexit increase, the more attractive non-sterling assets become as a way of protecting capital.

The one certainty is that volatility will continue at least up until the parliamentary vote on any Brexit deal, now earmarked for the week beginning 14th January. This looks like being one year where Santa won’t deliver his usual rally in equity markets. The UK (or at least its politicians), it seems, remain(s) on his naughty list.

Ends
 
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Notes to Editors
Redmayne Bentley has a full range of services, from investment management services suitable for different life stages, through to traditional stockbroking, dealing with advice and tax efficient investments.
 
Santa Rally may not deliver as ‘No Deal’ Brexit odds increase

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