Playing the Hand You’re Dealt: How Will a No Deal Brexit Impact the Stock Markets of the UK and Beyond?
Three months can be a long time in politics- extremely when it comes to the UK in the years following the riotous Brexit vote of 2016.
With this in mind, it’s perhaps unsurprising that the Royal Assent given to pass a rule blocking a’ no deal’ Brexit in September 2019 already appears set to be rendered redundant by the brand-new majority Conservative government before the year is concluded.
The brand-new authority, are selected by a landslide on the 12 th December 2019 and headed up by Boris Johnson, constantly expressed their commitment to’ get Brexit done, ’ with the substantiating slogan that a Brexit deal with the European Union was’ oven-ready.’
Five periods on from their resound general election winning and pre-eminent reactionaries were already beginning to play-down the readiness of the oven-ready Brexit, with there now being clear signalings that the UK will leave Europe by the 31 st December 2020 regardless of whether or not any trade deals with the EU were completed- with no option to extend mediations further.
Assessing the likeliness of no-deal
Of course, the sloppy subject of Brexit is a tricky one to steer. The happening that the commonwealth is still no clearer on its future three-and-a-half times on from the EU referendum indicates that negotiations are severely complex- and perhaps more so than MPs themselves would like to believe.
However, the reaching of majority decisions Conservative government could eventually is a good one in terms of achieving a Brexit slew. With more representatives in the House of Commons, it’s much more likely that the government will reach an agreement in the deliver of the kind of treats that would’ve been elected down prior to the 2019 general election.
The much stronger question here is whether Prime Minister Boris Johnson would prefer to press on with his oven-ready deal that was agreed in principle with the EU in October, or whether the leader has his eyes defined on a no-deal exit at the end of 2020. Johnson’s eagerness to prorogue Parliament at a time when the UK was expected to leave the EU on the 31 st October 2019 was identified by some as a deliberate assault at pressure a no-deal Brexit. When the prorogation was regulated unlawful, it led to accusations of the Prime Minister lying to the Queen over his reasons.
The current Conservative Party line is that the negotiation process will be successful- with downfall not seen as a viable option. But in reality, the timeframe of just twelve months to renegotiate 46 years of trade, security and foreign policy ties within the EU- not to mention come up with a satisfactory solution to the Irish border while fending off the threat of Scottish independence- seems excessively short. With this in mind, it would be unwise to ignore the prospect of a no-deal Brexit. So, let’s take a deeper look at what no-deal could necessitate in the context of UK and European stock market 😛 TAGEND The uncertain future of Sterling
( The rollercoaster five-year performance of the GBP in relation to the U.s. dollars. Image: XE)
Naturally, UK markets are heavily governed by the performance of Sterling. It’s been a wild go for the Pound, having fallen into ambiguity in the months building up to the EU referendum in June 2016 and having suffered a few false dawnings in the years that followed.
The landslide win for Boris Johnson’s Conservative government on the 12 th December carried a positive effect for Sterling, with investors buoyed by the relative business conservatism of the prevail defendant- as opposed to the more radical proposals offered by rival Jeremy Corbyn’s Labour.
Sadly, world markets remains nervous and this is likely to remain the case while the spectre of Brexit looms over the commonwealth. Investing.com has already reported that the possibility of no-deal has caused the Pound to fall in light of the post-election momentum it was building- with financing of the programme citing the surprising move to prevent any further expansions to the EU transition period beyond December 2020 as the prime cause.
The data available shows that the UK economy has stalled since the peace agreements of the legislative elections, but despite this payments have continued to perform well- rising above its 3% possibilities to thump 3.5%. Low employment rates of exactly 3.9% are no doubt helping the UK’s economy to remain stable- however, it’s important for the government that these levels don’t show signs of increasing in the new year both in terms of supporting the value of Sterling and retaining the newfound sect numerous working-class constituencies have placed in the Conservative Party.
The FTSE and beyond
Domestically, the prospect of a no-deal could return significant damage for the FTSE 100. MarketWatch anticipates that a no-deal would clean 15% of the value off UK inventories while at the same time compelling the Pound to fall by a further 10% against the U.s. dollars. The wider connections will gurgle across the Atlantic, causing a 3% drop in US inventories.
Also heavily affected by the outcome of Brexit would be German stock costs, with the MSCI “re waiting for a” fell of five% to affect the European superpower.
While this realise for pretty bleak reading for investors and public companionships across the UK, EU and beyond, the forks of a’ well-managed’ exit deal may watch domestic equity markets make a health start of up to 10%- with Sterling too rising by 8 %.
MSCI specialists Aniko Maraz and Thomas Verbraken are unanimous in their agreement over the implications of a no-deal Brexit: “In short, equity marketplaces would slip, with the U.K. bearing the largest impact. Sovereign yields would decrease in the U.K. and Europe, while corporate spreads would widen. Both the pound and euro would lose value relative to the dollar.”
Some silver linings
The re-emergence of a no-deal Brexit may be an uncomfortable one for investors and public business alike, but the process of establishing a Conservative majority has had some mitigating factors on UK broths.
( Amidst hesitation, some UK broths remained buoyant. Image: Capital)
The chart above illustrates that the security of a Conservative majority government has already shown signs of encouraging healthier levels of risk appetite among investors. This comes as a result of the unease that competitive defendant, Labour’s campaign manifesto brought in terms of taxation for higher earners and huge firms.
( Elections can have running impressions on the economy, but investors generally feel optimistic among Conservative governments- in spite of surrounding uncertainty. Image: Capital)
Here we can see that even in spite of Brexit haunting the previous Conservative campaigns, investors generally trust that their interests will be upheld within a Tory government.
With the expected confirmation that Brexit will’ get done’ one way or another by the conclusion of 2020, the the possibility of the UK, Europe and even the US feeling the tinge of a no-deal has greatly increased.
There’s little doubting that this will have a widespread negative impact for years to come for the stock markets of Europe, a real test of Boris Johnson’s mettle will come in the form of how the Prime Minister steadies the ship amidst the choppy irrigates of stock market jitters. Currency needs to be managed, the Union maintained and the markets hindered health. If Johnson can instil some confidence among UK enterprises, there may be a chance that the costly suggests can be mitigated.
Failure to respect the significance of a no-deal Brexit would otherwise lead to a worrying start to the decade for life economies. Of trend, Johnson’s oven-ready deal with the EU could help to save the nation from much of the forthcoming chaos- but with so much better negotiating on the horizon and potential conflicts of interest over the kind of Brexit Johnson and his peers crave, it could prove to be a case of too many concocts curdling the broth.
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