Market News & Analysis


Top Story

Sterling surges though UK-EU gap remains "quite wide"

Reports that UK and EU negotiators were moving closer to a Brexit deal on Tuesday afternoon have re-charged cross-asset rallies across the Continent and British-tied shares, even as both sides continued to pepper rising optimism with caution.

Key points

  • The UK reportedly submitted revised proposals on Tuesday to bridge an impasse that opened at the weekend, after a ‘pathway’ to an agreement opened up during talks between Boris Johnson and Ireland’s Leo Varadkar
  • The new proposals centre on clarification of custom arrangements for Northern Ireland, according to reports
  • The exact sticking point appears to be the extent to which Northern Ireland will be separate from the EU’s customs union

If reports are accurate, it looks like it is the shape of the eventual 'fudge' that’s being discussed, for want of a better word. Remember, the key difficulty around alternative proposals to the backstop has always been coming up with arrangements that respect, if not resolve a key conundrum: how to maintain trading standards and regulations the lightest of quasi-customs arrangements that are acceptable to both the EU and UK.

As ever, it’s all too easy to see how even the promising progress that’s emerged from reports could evaporate, as has happened in the past. Unsurprisingly, none of the key protagonists are entirely giving in to unanchored optimism.

  • Referring to earlier in the afternoon, Ireland’s Varadkar noted that the gap in agreement over customs remained “quite wide”
  • The latest talks have been “constructive”, though there’s more work to do, the PM Johnson’s chief spokesman, James Slack noted

That anticipates the next challenge, where any deal will have to win over the DUP, the unionist Irish party that lends conditional support to Britain’s Conservative government. Johnson is said to be “confident of getting the deal through” Parliament, if it can be agreed with the EU, with “ongoing dialog” between the prime minister and the DUP conveyed by his spokesman. Under the circumstances, the EU’s informal midnight deadline for deciding whether a viable deal is in the offing might be allowed to slip somewhat. Markets in their current state of excited anticipation would probably react favourably.

Tuesday’s key market reactions so far

  • Shares extended gains across the EU, though Ireland's ISEQ All-Share rose most, with a 2.5% rise
  • The FTSE 250 index, laden with groups dependent on the UK for most of their revenue tacked on 1.3%
  • The DAX rose more than 1% to its highest since August 2018; the broad STOXX 600 reached its best levels since May 2018
  • Even the FTSE 100 threatened to erase small losses in favour of small gains. Sterling gains typically drag on the FTSE's global exporter shares, due to the perceived pressure on their revenues
  • FX markets have expressed resurgent optimism via both the pound and the euro. Sterling advanced as much as 0.8%, with the single currency getting as high as 0.5% off lows

Clearly, the market reaction itself puts even more at stake should talks look like they might falter. Even if the deal gets across the line in Brussels it will then face a Parliamentary vote, after MPs voted down former Prime Minister Theresa May’s deal three times, before defeating Boris Johnson many more times. For sterling in particular, perhaps Wednesday’s inflation figures may turn out to be the least of its problems, regardless of how far away they are from expectations. Overall, the pound is no less volatile this week. Short-term volatility indicators have risen for four straight sessions.

On the charts, the pound has pierced its closely watched 200-day moving average for the first time since late April. However a key level we have been watching as a gauge of how convinced sterling buyers really are—$1.278, a failure high from June—has been tested though not sustainably breached. Like deal prospects, sterling’s chances of a lasting recovery are buoyed, though still quite in the balance.

GBP/USD – daily [15/10/2019 17:09:44]

Source: City Index



Disclaimer

This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

GAIN Capital Singapore Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the GAIN Capital group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), GAIN Capital Singapore Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact GAIN Capital Singapore Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither GAIN Capital Singapore Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

GAIN Capital Singapore Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit cityindex.com.sg for the complete Risk Disclosure Statement.

Important Notice:

Cryptocurrencies are not legal tender currency and trading of derivatives on Cryptocurrencies are currently not covered under any regulatory regime in Singapore. Consequently, investors should be aware they do not have protection under the Securities and Futures Act (Cap. 289). Please ensure that you are fully aware of the risks.