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Is Brexit's Fog Finally Lifting? Deal Reactions

Jackie Bennion, Deputy Editor, 18 October 2019

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"We've been here before," is the cautious response. Nevertheless, a deal emerging from the negotiating "tunnel" has rallied markets and expectations.

Keith Wade, Schroders’ chief economist and strategist
“We do not have the full details as yet, but if the deal passes through parliament on Saturday we should see stronger growth in the UK economy as the cloud of Brexit uncertainty lifts. Importantly, this is a big step toward avoiding a no-deal Brexit where the UK would have crashed out of the EU possibly causing a damaging recession.

“To get the deal through Parliament the Prime Minister (PM) will require the support of the hard-core Brexiteers (European Research Group), the 21 Tory rebels expelled from the party and around 17 Labour MPs, on the basis that the DUP votes against. However, assuming the vote goes through, we will move into a transition period until at least the end of 2020 during which time the UK and EU will start to hammer out a trade deal.

“There will still be some uncertainty about the UK’s future relationship with the EU, nonetheless the likelihood of avoiding a no-deal is increasing. As this tail risk fades, sterling can be expected to rally further and gilt yields rise as investors anticipate a better economy and a firmer monetary policy. Of course, if the deal fails in Parliament on Saturday we are back to where we started. Either way PM Johnson is likely to call a general election.”

Paul O’Connor, head of the UK multi-asset team at Janus Henderson
“The UK takes a big step towards Brexit, with today’s key announcement. Parliamentary ratification is the next major hurdle to clear. With the DUP uncomfortable with the deal, the parliamentary arithmetic for Saturday’s vote is very hard to call.

"If the Prime Minister does get the deal through parliament on Saturday, then the UK is heading for a fairly hard, clean-break Brexit. If the vote fails, then a general election looks imminent. As the polls stand, the Conservatives would be expected to win that with a workable majority and a mandate to implement the sort of Brexit outlined in today’s deal.

"The euphoric market response reflects the diminishing probability of a no-deal Brexit. While global investor scepticism about UK assets means that the rebound in sterling, gilt yields and UK stocks probably has further to run, we would be wary of extrapolating these moves too far. The path to implementation might still be a bumpy one. Even if Boris Johnson does manage to close the deal, investor celebration of this might soon be dampened by the recognition that this is a fairly hard Brexit. The UK now faces a long period of weak economic growth, regulatory uncertainty and political scuffling with our largest trading partner.“

Colin Morton, portfolio manager, Franklin UK equity team
“Markets have responded positively to the news that Boris Johnson is on the verge of agreeing a Brexit deal. We’ve seen sterling rally and shares in UK domestic stocks have buoyed following the announcement that an agreement had been reached with the European Union. In particular, we expect to see real estate, housebuilders, financials and UK consumer stocks to do well if a Brexit deal is agreed by parliament on Saturday. In our view, this would be a good outcome for both the UK economy and stock market as it creates the certainty that investors have been craving.”

Nigel Green, founder and CEO of deVere Group
“The pound has soared above $1.29 for the first time since May on reports that a Brexit deal has been reached and UK stocks are boosted in a relief rally.

“However, the rally is currently being tempered as it needs to get through the UK and EU parliaments. There do seem to be some question marks remaining over the DUP’s support, which is, of course, critical to getting the deal through the House of Commons. That said, there does seem to be a growing sense of optimism that it can get approved.

“If this deal is ratified, we can expect the pound to jump sharply. It is likely to hit at least $1.35 as the prospect of a no-deal, and/or months of further uncertainty ends. Sentiment towards UK stocks will also rally, particularly given the attractive valuations of many UK companies.

“However a strong pound may dilute the impact on exporters as their earnings in dollars and euros, amongst others, will become less valuable in sterling terms. There is potential for a significant relief rally for the pound and UK financial assets if this new Brexit deal is approved.

“Even if it is passed, this is really just the beginning – not the end. As such, investors need to protect themselves from market uncertainty and also best-position themselves for the inevitable opportunities through exposure to a broad range of assets, currencies and geographic regions."

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