Where are we now on Brexit?
As usual, nothing in Brexit goes according to plan. Here’s where we are;
The meaningful vote has been cancelled as May saw the stark reality of the size of the possible defeat after canvassing her party members. She’s now headed to Brussels to try and get some “reassurances” over the backstop. She’ll want this done before the EU summit. This is actually a very key moment because it could swing the vote her way or see her sink further into the mire. The issue is, it’s going to take more than just some cheap promises and already there’s talk that anything May does get won’t be legally binding anyway. That won’t fly in Parliament.
What do we need to look for?
- Some actual changes to the backstop that give the UK the right to end it, that are legally binding is the jackpot result. That would likely mean the vote passes and we have a Brexit deal. – GBP positive
- Some type of addendum on reassurances on the backstop ending that are legal or will become legal at a later time (i.e. to be ratified by the EU) – Mildly GBP positive
- Some flim-flam, non-legal airy fluff reassurance on the backstop – negative for GBP
The problem is that even if we get a perceived good result from May’s talks, the GBP reaction could be limited because we’ll have to wait to see how the
flumps politicians in Parliament react to it. And therein lies another problem.
Because there are some politicians who are putting themselves and political ambitions ahead of the the actual voters, under the guise of fighting for their constituents to leave or remain, it won’t matter to them if the deal is good as they just want to push their agendas. The damaging thing is that these are the people who will shout the loudest to try and influence the sheep. So, expect them to be one of the first to come out and criticise the deal whether it’s good or bad. It will be a shock if they back it, even if they have to toe the line if it’s a good deal for the sake of not being ostracised for going against the rest of their colleagues who may back it. In this instance we’ll have to try and see the wood from the trees and those who might back the deal and thus swing the vote. Politics eh?
What’s the end result?
Trying to simplify the possible outcomes, we’ve got two stages.
- May going back to the EU
- Presenting whatever outcome to her ministers and then the house
I’ve already detailed the first above so for the second, if it’s a resounding rejection, GBP falls. If it’s mildly positive but needs a lot of work or the vote outcome is not clear, expect GBP to stay relatively neutral. If it gets a resounding thumbs up and looks likely to pass. We’re off to the races. One thing, forget about the proposed meet between Juncker and May today because it’s likely to be fluff. Juncker is not in charge of any negotiations and so it’s likely to just be a presser to announce any fresh news, which we’ll probably have heard about prior to it anyway.
Now for something on moving forward. I’ve had lots of discussions with people about how positive or negative this sort of news may be so let me attempt to put forward my view.
We know that whatever happens, good or bad, there’s still going to be political fall-out for May. We could get a deal and then the DUP pull their support for May, leaving May with no majority. We could get a deal and May still gets slapped with a no-confidence motion. We could still get a general election. For a lot of traders, none of that will matter. The bulk of the market is trading deal or no-deal and it will move on that. It doesn’t care for what politics may follow after, it only cares on whether Brexit is going to be good or bad right now, and will make the bulk of its moves on that. The rest will be another situation and another trade altogether. Think of this point almost as important to traders as the Brexit referendum itself.
To use an example, It’s like when I traded USDCNH. My strategy was to trade against the big 7.0 level and take profit on solid positive trade news. To that extent, my plan worked and I took profit after the G20 meeting. That trade is done, I’m out and I don’t really give two hoots what happens now. If I look at he pair again it will be as a fresh trade, even if the parameters are the same. The same applies to many people trading Brexit. Deal or no-deal and they will close/move whatever positions they many have been on for over two years on that single outcome, and we’re at that moment.
Sometimes we can get bogged down in what messes might come after but they are often minor compared to the original situation. So, think along those lines when trading Brexit. We will get big moves on confirmation of a deal or no-deal, and they will be long lasting until the next situation comes into focus.