Even Brexit rumours are losing their edge!

Wednesday, 9th October 2019 14:36 - by Shant

Early on on Tuesday, European Council President Donald Tusk warned the UK PM not to enter a blame game over what is once again looking like an insurmountable task in trying to reach a deal within the next few weeks.  Well, to many it would seem that we are already well beyond that point (in the blame game) with the EC head also tweeting his frustrations by claiming the UK does not want a deal or an extension or to revoke Article 50.  He asks - where are you going?  Indeed, that is the billion-dollar question on everyone's lips at the moment, certainly in the UK and I suspect over large parts of Europe.  

If Boris Johnson and his advisers were aiming to cause as much confusion as possible into the October deadline, then we can safely assume that they have done just that.  On one hand, legal documents suggest that Number 10 will adhere to the requirements of the Benn Act voted on and given Royal Assent in early September, and on the other, Boris Johnson claims he will not ask for an extension and that the UK is set to leave on the 31st of October come rain or shine.  It is also safe to assume that behind the scenes, the government is and will be looking at any means by which to circumvent the 'rulings' forcing a request for an extension, which by the way, will require all 27 member states to agree to such a move.  

According to reports earlier today from inside Number 10, a conversation between Boris Johnson and Angela Merkel was said to have concluded with the German Chancellor claiming that a deal based on the latest proposals where 'overwhelmingly unlikely' - not the sort of language associated with the PMs counterpart - and one who has been so keen among the EU member states to accommodate the UK in finding a resolution to the current impasse.  When quizzed by journalists, Merkel's spokesmen said they would not comment on closed and private conversations, though it is clearly no secret that the EU (as a whole) finds the UK plans as 'problematic' given Ireland's vocal disapproval of the twin customs checkpoints proposed.

Early Wednesday, we saw Boris Johnson gaining a minor victory as the Scottish courts ruled in favour of Boris Johnson on an amendment to allow parliament to request a letter for an extension from the EU in the case that the PM does not. The judges did, however, allow appellants to return to court if the PM refuses to act in accordance with the Benn Act, assuming of course, that a deal has not been reached by the end of next week.  

Later on, in the morning session, press reports in the UK suggested that the EU may offer a concession in the form of a time limit on Northern Ireland's.  This was dismissed by DUP leaders at the time, before the EU themselves dismissed the report, reducing the Brexit saga deeper into a pure rumour mill which will soon fail to have any material impact on the markets.  As we have noted many times before, Sterling remains the primary sentiment gauge on where we are headed on Brexit, and inside 1.2000-1.2500, we can see the Dollar exchange rate has shown little major change over the last few days.

The latest twists and turns - and we are sure to see and hear of many more before the month is over - look to have had minimal impact on the FTSE given the relative performance of stock markets elsewhere.  As of late Tuesday, the S&P 500 was down over 30pts - or a little over 1% - compared to the FTSE's 14-15pt drop on the day.  It is hard to quantify the impact on stocks in the current climate, as global equities grapple with the prospects the future earnings amid slowing growth, and valuations thereon may be unrealistically optimistic.  Wednesday morning has again seen a minor recovery as the talk from China suggests a partial deal, but we have been down this road many times before and there are a number of parallels to consider with Brexit here.  

The underlying common denominator here is the level of uncertainty and the glaring realisation that there really is very little light to note at the end of the tunnel.  Hope naturally springs eternal, but one thing to consider is that uncertainty - and long, drawn-out at that - will always detract from economic prosperity.

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.