UK financial assets and the pound will rally if Theresa May’s Brexit deal is passed today (Tuesday), affirms Nigel Green, deVere Group’s founder and chief executive.
The UK Prime Minister has made a final plea to persuade the lawmakers in parliament to back her Brexit deal. It follows an “alleged coup” by pro-EU politicians attempting to strip the government of control.
Mrs May postponed a parliamentary vote on her deal last month, admitting she was set to lose it. To win today, the PM has to overcome heavy opposition from across the political spectrum.
Mr Green observes: “If it is passed, sterling will rally sharply as the prospect of a no deal, and/or months of further uncertainty ends.
“Sentiment towards UK stocks will also rally, particularly given the attractive valuations of many UK companies.
“However a strong pound may dilute the impact on exporters, as their earnings in dollars and euros, amongst others, will become less valuable in sterling terms.
“As such, the FTSE 100, the UK’s benchmark index, may underperform small and mid cap stocks in the relief rally that follows the Bill’s passing.”
He continues: “If the bill is not passed, as is widely expected, sterling and UK financial assets will probably be unmoved since this is the expectation – the markets have priced it in.
“However, a significant loss for the government (say by over 40 votes), would lead to a further fall in sterling and negative sentiment towards UK stocks. Financial markets do not like political uncertainty.”
Mr Green goes on to say: “Should Theresa May be defeated, the leader of the opposition Labour party, Jeremy Corbyn, will push for a general election.
“Another UK election in these highly unusual times can be expected to spook the markets and have a direct negative impact in the short-term at least on the pound, the FTSE and UK financial assets generally.”
The deVere CEO concludes: “There is potential for a large relief rally for UK financial assets and Sterling if Mrs May’s Brexit bill is passed – but this looks unlikely to materialise.”