He was so sensitive to Brexit’s development that even if Boris Johnson officially left trade talks, the pound’s sterling remained rather calm.
The British Prime Minister leaves on a show of power to act as an invitation to future concessions rather than a door that closes in negotiations. Even though October 15 serves as a temporary cutoff point for deal production, opportunities for compromise remain on the table. At least that’s how the currency market seems to have read it.
It will decrease by 0.13% during the day and 0.27% late evening, but points are above 1.10 against the euro.
Although it’s just below the pound-euro exchange rate seen in most of October, Boris has to maintain his Brexit bluester, so there certainly is more downside room for Sterling (for concessions and to keep his core of support happy).
Kingswood CIO Rupert Thompson talks about Pond’s lack of sensitivity to recent Brexit development.
“The pound in the past has been very sensitive to changes in trading and no-deal odds, but last week it hardly moved. If we become a no-deal, Sterling is very likely to drop very much, but perhaps the difference between the two options on the table (deals and very minimalist trading) is not that great. As for the ongoing misperformance of UK stocks, this probably reflects the view that no matter how Brexit takes, the economic recovery is the last thing it needs now.”
“In the absence of deals, the impact can be more noticeable in movements within the market, not the entire market. A pound decline offers some protection for the FTSE 100, as around 75% of revenue comes from overseas. These revenues are worth stabbing, not exposure to the UK economy. In contrast, central and small caps become rather vulnerable. They have come from overseas for less than 50% of their revenues, and have been able to return some of their recent outperformance.”
