(Article 50) Shades of May

Theresa May has finally given the Eurocrats what they’ve been baying for: a finite timescale for Brexit. This has come after a cautious first few months as PM, during which she appears to have successfully convinced the nation that she’s a steady hand at the tiller. She has avoided overt criticism despite political u-turns; campaigning for Remain (albeit in the background) before embracing the request by the country to Leave.

William Parry
“What will be critical is how the Sterling market develops.” William Parry, investment consultant, London

If the general commentary from the continent is to be believed, adding certainty to the timescale is something that will be appreciated. UK politicians have been less supportive, enjoying the opportunity to add a bit of “hard Brexit” scaremongering.

There has been a particular canniness about the way Article 50 has been invoked. The likelihood for a hard Brexit scenario (with the slow-moving nature of change within the EU making agreement on anything significant within two years very difficult) has been mitigated. May has done this in two ways: setting out the boundaries early and gaming the system’s way of marking time.

In terms of policy, May has already made it clear that we want to regain all control of our immigration policy and law-setting (no longer deferring ultimately to Brussels). And by “pre-announcing” Article 50 being invoked (by March 2017), May has effectively added up to six months to the two year window – this might prove to be much needed extra time.

As a result, financial markets appear broadly sanguine about the matter. Equity markets indicate that May’s path of progression was priced in by investors in the market bounce-back following the June referendum. If things unwind as expected, these moves might continue to be muted.

What will be critical is how the Sterling market develops. And as such, this is where I would expect the opportunities to arise.  After the hammering it took earlier in the year, early signs show a stabilising against the euro and dollar. A considerable amount of overseas currency hedging has been taking place among our clients. I’d suggest monitoring this carefully – playing currency markets is very difficult, but if markets move to historic extremes (as they are now) and back, carefully considered tactical opportunities can add significant value.

 

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