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The Brexit "Soap Opera" continues to remain in the financial market

March 15, 2019 08:31
source: Financial Times

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Summary
[British Brexit "Soap Opera" continues Financial market doubts remain] Even though the Brexit "soap opera" has continued for a long time, it is still one of the focuses of the international financial market. On March 13, Beijing time, the British Parliament vetoed the Brexit amendment agreement of British Prime Minister Teresa May with 391 votes to 242 votes. Up to now, the UK still cannot reach a consensus on when to leave the EU, how to leave the EU and whether it will conduct a second referendum. (Financial Times)

Even though the Brexit "soap opera" has been going on for a long time, it is still one of the focuses of the international financial market. On March 13, Beijing time, the British Parliament vetoed the Brexit amendment agreement of British Prime Minister Teresa May with 391 votes to 242 votes. Up to now, the UK still cannot reach a consensus on when to leave the EU, how to leave the EU and whether it will conduct a second referendum.

In this context, the financial market lacks clear guidelines and performance is mixed. Among them, the pounds fluctuated with the market sentiment, and also went out of a wave of ups and downs. Overall, since the beginning of this year, the international financial market has responded smoothly to the Brexit. The collapse of financial assets after the Brexit referendum did not repeat itself. However, the volatility of the pound and the ups and downs of market risk aversion have highlighted investors. Concerns about the prospect of Brexit.

Market revaluation shock

Before and after the British Parliament voted on Teresa May's Brexit Agreement, the exchange rate of the British pound in the international exchange market fluctuated drastically. Earlier, a senior legal official from the British government said that the legal risks linked to EU rules after the Brexit still existed. Subsequently, the British Attorney General Geoffrey Cox said that without the EU's consent, the UK may not be able to leave. Under the influence of these comments, the exchange rate of the British pound against the euro fell from 1.17 euros to 1.15 euros. GBP/USD also fell 2 cents from $1.32 to $1.30. Compared with the fluctuation of the pound in the foreign exchange market, the commodity market is not shocked. On Tuesday, gold prices rose, regaining most of the decline in the previous trading day. The price of gold delivered in April rose by $7, or 0.5%, to close at $1,298.10 per ounce, down 0.6% on Monday. Gold futures hit a high above $1302 an ounce after the final vote in the UK parliament came out. In the international stock market, the European stock market did not fluctuate greatly this week because of the Brexit, and US stocks also fell as usual.

At present, the performance of the international financial market on the Brexit event in the UK has been relatively stable. The scene of the stock market, bond market and foreign exchange market collapsed after the Brexit referendum in the past did not reappear. German businessbankJugen Weinberg, head of commodities research, said in a report that the trend of Brexit will set the tone for gold prices. If the Brexit event can bring good news in May this year, it may boost investors' overall interest in risky assets and may bring new pressure on gold prices.

Analysts said that at present, the international financial market is reassessing the market impact of Brexit. Undoubtedly, once the UK is out of order, it will be a disaster for the British economy and the European economy. Even the global financial market will suffer from the "fish". The data shows that if the UK and the EU reach an agreement, then Brexit vs. the UKGDPThe resulting loss will be between 1.25% and 3.75%. However, if no agreement is reached, it will result in a loss of approximately 10.5% for GDP. This is also one of the reasons why the disorderly Brexit will be hit hard on the pound. However, most market participants believe that the UK will avoid the “hard Brexit” model, and the British government may ask the EU to postpone the provisions of Article 50 of the Lisbon Treaty and postpone the official Brexit date of March 29, 2019. Then, seek to renegotiate the Brexit agreement with the EU. If this speculation becomes a reality, the market shocks that Brexit may bring will not be large and need to be reassessed.

Uncertain prospects are still the main cause

In the past two years or so, the Brexit process has always been one of the focuses of financial markets. The reason behind this is that its prospects are always uncertain. For example, at the beginning of Brexit, the pound plunged more than 15% against the dollar;UK economic dataThe performance was good, but once there was a negative news about Brexit, the pound was always hurt. From October 2016 to March 2017, the pound went down to a low of 1.20.

Analysts said that in recent years, behind the news that Brexit touched the market's sensitive "neural", traders have been paying attention to politics, not just economic data, which means that the transaction speed is accelerating and the financial market volatility is accelerating. Jeremy Straghi, head of foreign exchange strategy at Commercial Bank of Canada, said that for the savers, the UK's "soft Brexit" may be good news. The UK's “soft Brexit” may bring confidence and certainty to businesses and consumers, boosting the economy and stimulating businesses and consumers to increase spending or hire more employees. The worst situation is "hard Brexit." Jeremy Stella believes that once the possibility of "hard Brexit" is reduced, the pound will rebound. Similarly, suspending or delaying the Brexit process will also boost the pound and bring more market optimism.

Sterling moves into focus

Relative to the stock market and the bond market, the most direct and sensitive response to the Brexit issue is the performance of the pound in the foreign exchange market. Experts said that under the background of the uncertainties in the prospect of Brexit, once the market is in turmoil, the pound will inevitably bear the brunt. If the final result is "soft Brexit", then the pound is likely to rise, and the pound against the dollar may even soar by 5%. However, it is more difficult to predict the trend of the pound in different scenarios, such as extending the Brexit time, holding a new election or conducting a second referendum on the Brexit.

In the past two years or so, the pound against the dollar and othercurrencyIt was a difficult trend at one time. At the end of the Brexit referendum, the pound had depreciated sharply in the short term. As we all know, since 1992, the pound has been free floating in the foreign exchange market, which means that traders - buyers and sellers - determine its value. Jane Welfare, senior foreign exchange strategist at the Dutch cooperative bank, said that the free floating currency has a positive side because it acts as a safety valve. After the global financial crisis, the economy suffered heavy losses and the currency weakened, which is conducive to promoting British exports. In comparison, in the European debt crisis, since the euro "bundled" the member states of the euro zone, countries such as Greece and Spain could not use the depreciation of the local currency to cope with the economic crisis.

However, the relatively flat trend of the current performance of the British pound, which means that the prospect of Brexit is "the night before dawn", or the stalemate in the long and short confrontation? The market view is different.New York Mellon BankManaging Director Simon Derek said the decline in the pound reflects an increase in the uncertainty of the Brexit process. At the same time, the volatility of the pound will make the Brexit more complicated. In the context of high political uncertainty, “it will stir up the water”. In January of this year, the British pound against the US dollar exchange rate fell to 1.26 US dollars due to the setback of the Brexit process. At present, the future of the pound will not only be affected by the Brexit event, but also one of the “wind vane” of the prospect of Brexit.

(Article source: Financial Times)

                (Editor: DF376)

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