A week is a long time in politics - make that a day!

Friday, 11th October 2019 14:03 - by Shant

What a turnaround for the books - and in this case, for those books holding Sterling.  As the primary sentiment indicator for Brexit, the Pound has rallied hard in the wake of the meeting between the UK PM Boris Johnson and his counterpart in Ireland, Leo Varadkar.  Indeed, all was quiet from the UK side, and it was the Irish PM who delivered a series of comments which suggested that a possible deal could be formulated on the basis of the discussions held between the 2 premiers on Thursday.  Such was the optimism on behalf of Varadkar that he also posited that a deal may be in the making by the end of next week.  In the current market format, this is music to one's ears and it has been one-way traffic for the beleaguered Pound, which has gained around 3% since the news.

Somewhat unsurprisingly, the EU and European Council leaders have been striking a cautious note - not least of all Donald Tusk, who maintains that a workable solution has yet to be delivered.  However, given the potential breakthrough with Ireland, optimism is riding high with the EU Commission reiterating that they will work hard to get a deal done.  On this, there is no dispute that a deal works for both sides, but this is politics and the EU will stand firm on maintaining the integrity of the single market and any hint of concession here could have grave consequences given the fragility of member states within the union.  The EU is fully aware of this, so running away with the view that a deal is more than likely - at this stage - is going a little far.  

What we do know is that after the meeting between the Brexit Secretary Stephen Barclay and the EU's chief negotiator, EU countries have given the 'go-ahead' for more intensified talks moving forward, with Mr. Barnier also describing his talks with his UK counterpart as constructive.  He did however ask reports to be 'patient' and 'keep calm', but it seems the UK has provided enough assurances that it is indeed seeking a workable deal, rather than just trying to run down the clock as many (on both sides of 'the pond') have accused Boris Johnson of doing.  It will be quite a coup if a deal is pulled off, and from criticising Mr. Johnson's hard-line stance, it will perhaps be seen as the requisite modus operandi - one which Theresa May chose to avoid in delaying the exit date - twice.

There is also another not so small matter which we need to consider in this latest bout of euphoria, and that is of any agreement within parliament.  Any deal will surely test the resolve of certain Remainer MPs - on all sides - and the DUP - on which the current government relies on, has been downbeat over this potential breakthrough.  At this stage, it is pure conjecture on how the House of Commons will react to events over the next week or so, but with the LibDems and SNP firmly advocating revocation, things will get interesting, to say the least.

Whether this can eventually help UK stocks depends on whether these latest developments can lead to a deal, which in turn only takes us to the next stage of the negotiations.  The UK and EU still have a long road ahead in deciding on the future trading arrangements, and as I have mentioned before, the (EU) trade agreement with Canada took 7 years and here also there are finalisations yet to be made.  One tends to forget where we are in the process, and even though I personally believe a positive outcome will be reached, the path to the end result will not be smooth.  This week's events shine a different yet welcome light on proceedings compared to previous weeks, so let us just hope that logic prevails at a time when the global economy can do without added and increased uncertainties.

The Writer's views are their own, not a representation of London South East's. No advice is inferred or given. If you require financial advice, please seek an Independent Financial Adviser.