Uncertainty is the name of the game

6 September, 2019

Tom Arnold

What a week it has been on the markets… The tumultuous goings-on in Westminster have completely dominated the markets this week, and have for the most part been kind to the Pound. Having reached near multi-year lows against both the Euro and the US Dollar in the last couple of weeks, this week has seen the Pound jump up as a result of two things – a drop in the likelihood of a No Deal Brexit, and the removal of a palpable amount of the dreaded Uncertainty.

You might be forgiven for finding this a strange result of a devastating week for Boris Johnson’s government, but the reality is that a weak government doesn’t worry the markets anywhere near as much as No Deal does, and critically we are starting to get a firm picture of what the coming months might look like, and the markets love nothing more than Certainty.

To summarise the week gone – No Deal was most definitely the most likely future course at the start of the week, but the amusingly named “Rebel Alliance” brought forward their anti-No Deal bill, have defeated the government a total of four times in the Commons, persuaded the often reluctant Lords to pass the bill, rejected the chance of an imminent General Election, and forced Boris Johnson into a corner from which there is little chance of escape and we are even hearing talk of a possible resignation.

The future is not concrete yet, but is looking increasingly like we will see the prorogation of parliament take effect next week, after the anti-No Deal bill completes its passage. A month-long break for the political party’s conferences, during which it is also likely Boris will actually get on a plane and head to Brussels to actually try and do some negotiating. A resumption of parliament in mid-October. The anti-No Deal bill forcing the government to seek an extension from the EU, which is likely to be granted, therefore giving us an extension to the end of January 2020. And finally, a November General Election.

What happens at that election is hard to predict, but the Conservatives are very unlikely to get anywhere near the number of seats they have now for two reasons – they will have failed, once again, to deliver on their Brexit promises, so in heavily Leave areas they will lose out to Nigel Farage’s Brexit party, and they have just fired a significant portion of their own MPs, who will in many cases likely stand as Independents, and even if they don’t win back their seats, will likely cause a split in the Tory vote and an easy win for another party. Coupled with the certain tactical seat contestation from the Rebel Alliance, it could be a Tory bloodbath. Could we see a multi-party coalition, maybe a Corbyn PM, with Swinson deputy and SNP chancellor?

What this means for your upcoming currency requirement is a little harder to predict. With No Deal largely off the table, the recent lows are probably gone for now, which is great news for those with Sterling in hand, and it is likely that we might see a bit of a boost for the Pound on Monday when the anti-No Deal legislation comes into law, and the Tory’s final attempt at forcing a quick election fails, but after that we will enter the doldrums of the prorogation, during which it would be no surprise at all to see the market settle and maybe shade a little lower following its recent jump up, and then we enter a hectic couple of weeks, where we wait on the EU for an extension, possibly see the government fall apart further, and then start to worry about what an election might bring.

So, all in all, we are probably seeing a window of a few days during which the recent spike is available for buyers to take advantage, before at the least a period of plateau and more likely a period of lower rates and finally significant volatility. Make sure you stay in close contact with your CI consultant, to be kept informed of exactly what is happening and what the options are for your upcoming requirement.