Tim Watts, CFO at Shield Therapeutics #STX presenting at our Life Sciences Investor Briefing Watch Now
Friday, 6th September 2019 12:43 - by Shant
Well, it seems another Brexit deadline is set to pass uneventfully, with the last month or so seeing heightened panic as the government of the day impressed their intentions to push the UK to the brink of a no-deal. The move was designed to spur the EU into reconsidering the tough stance on the Irish backstop, and after some tentative signs that some of Europe's leading heads were warming to the idea of some compromise, the opposition parties have collaborated with Tory rebels to block a no-deal outcome under any circumstances. This has further polarised politics in the UK, and the general consensus is that a general election is now unavoidable. The only question now is - when?
In the meantime, a legal challenge of the legality of the PMs decision to suspend parliament next week has been rejected by the High Court, mirroring the decision in Scotland which also saw a similar challenge failing. The former case was brought by Gina Miller - a prominent anti-Brexit businesswoman - who had the backing of ex-PM John Major. Lord Justice Burnett, ruling against the challenge, did, however, allow for an immediate appeal to the Supreme Court, which is now expected to be heard in 11 days time. Irrespective of the decisions, it seems the House of Commons has control of the parliamentary agenda and will move heaven and earth to block any attempts to engineer any default exit from the EU at the end of next month.
Through the week, the PM has lost a series of votes, the most costly for the Tory party being the vote on Tuesday which wrestled control of parliamentary timetable away from the government. This was with the help of 21 Tory rebels including Kenneth Clarke, Sir Nicholas Soames and ex-chancellor Phillip Hammond. All MPs have been 'expelled' from their party, though the former names were intending to stand down at the next election in any case. Phillip Hammond however, will have his whip removed along with fellow colleagues including Rory Stewart, Greg Clark and Alistair Burt - all former ministers of the government. To further complicate the split in the House of Commons, it is also worth noting that Labour's kay Hoey and John Mann both voted with the government. To add insult to injury, Phillip Lee chose the PMs time at the ballot box to defect to the LibDems, wiping out Mr Johnson's majority in an instant.
Wednesday's vote saw the House of Commons voting in favour of the Benn-Burt bill which asks the UK government to ask for an extension to the Brexit date and also makes a no-deal Brexit illegal without parliamentary approval. The motion has been passed to the House of Lords when it is expected to be passed through by the end of the week. In response to this, Boris Johnson made his now widely famed comments that he would 'rather be dead in a ditch' than ask for an extension, and has ultimately prompted fresh concerns that he may stand down, causing yet more chaos in a situation which has now descended into utter confusion.
However, more drama ensued as the PM attempted to call a snap election, but with House of Commons facing a crisis of trust in the cabinet, the government was voted down here also. Thursday was no better as the resignation of Boris Johnson's brother Jo was yet another body blow to the under-fire PM, who is now facing (along with his Brexiteer contingent) an uphill battle to maintain his promise of leaving the EU at the end of October, do or die. The government will again try to call an election next week, but the major objective here - and one which troubles the Labour party than anyone else - is to avoid an 'accidental Brexit', as is the default position as it currently stands.
No deal is still on the table, but as we have seen with the primary gauge, the Sterling exchange rate, the odds of this have been reduced as the Pound has managed to recover back into the mid 1.2300's - albeit temporarily so.
However, it is the FTSE 100 which continues to draw the attention of the market as the Dollar based gains against the Pound continue to trump the negative effect of what continues to be unparalleled uncertainty hanging over the UK. Only over the last 24-36 hours have we seen the UK's leading index turn back south again, and all on the back of the rally in the Pound. In relative terms, the UK is still underperforming stocks in the US, though Europe's benchmark index, Germany's Dax, has also outperformed the UK in the last week or so, though we also have the prospect of fresh stimulus from the ECB to consider next week. Nevertheless, the Brexit damage to UK equity valuations continues to be on the modest side. How long that will last for depends on events over the coming months. One thing is clear and has been reflected in the UK data, and that is that business investment continues to suffer at the hands of delay, and delay is what seems to be leading outcome after events seen this week.
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.