Some thoughts on where the UK and markets stand on Brexit
As another eventful week slides to a close, let’s try and put everything into perspective.
1. Brexit itself
The pendulum has swing right back over to the hard exit/no deal side of the scale following Salzburg. What should have been some further joint assurances that we were progressing towards a deal, irrespective of outstanding issues, has turned into something like rolling a dice and landing on a snake and now we’re back to square one.
There are divisions among the EU27. It may only be a few but the repeated insistence that Barnier is still the man in charge, and that bilateral deals should not be happening is confirmation of that. I still can’t shake off Tusk’s demeanour at yesterday’s press conference. He looked very uncomfortable delivering his statement, more so after not a day before saying how;
“May’s proposals from Chequers indicate a positive evolution in the UK’s approach as well as a will to minimise the negative effects of Brexit.”
That further highlights the divisions and pressure being put on him and the Commission because they are not in charge of negotiations. No matter what their opinions of May’s Brexit plan is, it’s down to the member state heads to agree or disagree it. Tusk is just the foghorn, not the ship itself.
The behaviour of Tusk and some of the EU lot has left a lot to be desired. Tusk’s attempt at humour with his cake and cherry instagram post has been taken as a slant and given May some well needed support. Any signs of EU arrogance will give Brexiteers all the ammo they need to push their point, and that will also feed into the rest of the population. Whether May went in too hard with her speech or not, we’ve now got some bad tastes in a few mouths and that needs to be repaired before both sides can move forward. Maybe May’s speech today will draw a line under it but I doubt it as the EU will react. Hopefully, all will sleep on the matter this weekend and calm heads will prevail. Until that happens, things are going to remain edgy and negotiations will be tougher. Salzburg now looks to have been an exercise in showing who’s boss but it’s benefited no one.
2. Theresa May
There’s was probably a few quarters thinking that her statement today might have been a resignation. While that risk has been removed, the sword of Damocles still hangs above her. If we believe the story earlier this week, that Conservative rebels will wait until March 2019 before ousting May, we can rule out any moves before then, and the only risk is that May jumps before then. The rebels can afford to wait. If May ends up in a no deal scenario, they have their ammo. If she gets a deal, she’s won and so has her party and they all remain in power, yet there is still likely to be a leadership change or challenge at least. There seems to be far to much bad blood to mop up. It’s also in the rebels hands to force a no deal by voting against any agreed deal with the EU. That might still be more of a threat than a promise because if there’s a deal on the table, most of the UK population will likely want to take it just to get this bloody thing done. Any politician that votes against a deal won’t be seen in good light, and that will be remembered at the next general election.
So, May is damned if she does and damned if she doesn’t.
What will gain her some respect, even if some of it is begrudging, is that she’s sticking to her guns and sticking it out. Personally, that’s the least I want in my country’s leader. Even if I don’t agree wholly with some decisions or ideas, someone who doesn’t chicken out when the going gets tough deserves support. I doubt I’ll be alone in that respect. I maintain my view that a deal will happen because of all the money involved from trade, and that if there’s going to be a spanner in the works, it’s going to come from the UK side and due to political infighting and personal political gain being put ahead of the public’s best interests….as usual.
3. The markets
The most important part for it is what we’re all trying to trade. We’re back in negative mode again and these last two days highlight the fragility of this Brexit mess. Before Salzburg, I would have hoovered up a decent dip in the pound (and I had) to run into the Oct/Now EU summits. There were still big issues but there was some light and openness from the EU side to get something done. That’s changed on one “informal” meeting, and here we are with cable off over 200 pips since yesterday’s highs. The negativity will continue until relations are patched up and negotiations get back on track. Until then, I expect GBP to now be a big rally seller, as opposed to the dip buyer it’s been since mid-August. There’s going to be a lot of re-written expectations and increased uncertainty, and that’s going to feed into factors like some of the economic data and the BOE. The tide might have just turned.
Us retail traders are merely flotsam in the large trading ocean and we have to know when we’re floating with the tide or swimming against it. Until I hear, read or see a change in the current UK/EU relations, I’m not so keen to buy those dips for a longer-term play. I’m just going to move back to trading the short-term levels that present themselves but leaning with the tide and bearish bias.
The quid dropping 200 pips is a lot, and this move might show some exhaustion but it can go further. From here, I’ll just want to see how things pan out for a couple of sessions to see where the new levels develop and how old ones react.
And so, the Brexit mess rolls on. No one said it was going to be easy and at least it’s giving us plenty of volatility and opportunity, even if that includes some hair raising moments (no jokes please). We know where we are and we know what will change the situation again, so all we can do is watch. There’s no room for emotion in trading, nor personal opinions on what’s happening with Brexit. As traders we have to be objective and not let personal views cloud our judgement of trading. As an Englishman, I’ll deal with Brexit however it comes on March 2019 and give my personal opinions of it down the pub but as a trader I only care what the intricacies mean for that little ticker that moves up and down the price ladder on my chart.