Brexit endgame: Part III

Theresa May suffered yet another defeat last night (13 March) as a majority of MPs (321-278) voted to take a no-deal Brexit off the table permanently

Mar 14, 2019
0
0

Click here for part I 

Click here for part II

Theresa May suffered yet another defeat last night (13 March) as a majority of MPs (321-278) voted to take a no-deal Brexit off the table permanently. The vote was aided by 12 Tory rebels, including four cabinet ministers.

The government’s own motion sought to reject the no-deal option only for March, while keeping it on the table long term. However, the motion was amended to take the no-deal option off the table entirely.

Sterling ended the day 2.4% higher vs. the dollar (13 March), before giving up some of that gain to end up 1.5% at USD 1.34 going into European trading. Sterling is also up 1.2% to EUR 1.17 against the euro since yesterday’s trading, the highest it has traded since May 2017.

Bellwether UK domestic companies are muted in early trading (14 March) with UK homebuilders flat and UK domestic banks Lloyds and RBS up 1% and 70 basis points respectively.

The equity market response may be tempered as there is still a great deal of uncertainty and the stocks have already run significantly this year, with homebuilders up 24% year to date and Lloyds up 22%.

What next?

In an ironic twist the defeat may help the prime minster get her deal across the line. Theresa May will hold another vote on her Brexit deal next week. Eurosceptic Tory rebels and the Democratic Unionist Party must make a decision on whether the prime minister’s deal is their best chance to secure Brexit or whether another opportunity will come about despite last night’s vote.

In the meantime there will be a third historic vote this evening on whether to ask the European Union (EU) for an extension to Article 50. The expectation is that this will pass.

Any extension has to be granted unanimously by the EU27, a group that is increasingly frustrated with what is going on in Westminster. Many EU members do not want to extend Article 50, particularly with EU parliamentary elections coming up in May, unless there is clarity on what Britain intends to do next.

If parliament votes in favour of May’s deal then a short extension is likely. A longer extension may be granted if either a general election, a second referendum or an alternative softer Brexit plan gains consensus in parliament. Simply extending Article 50 with no plan will face opposition from members of the EU27.

It has been made clear that renegotiation of the current deal is not on the table.

This means that a no-deal Brexit is not off the table. The British parliament will have to come to the EU with an action plan or revoke Article 50 entirely, which many would view as going against the will of the people.

If parliament can get behind May’s deal, a softer Brexit or a second referendum it is likely that sterling and domestic UK equities can continue to rally. However, the division within, and between, parties mean that this is no small task. All the while the clock continues to tick.

Spring Statement

Chancellor Philip Hammond used his Spring Statement to tempt MPs into supporting the government’s deal. He has promised to spend a GBP 26.6 billion “deal dividend” and help end austerity as the UK’s public finances continue to surprise on the upside. This would help further boost UK equities if a deal is agreed with the EU.

Sources: Bloomberg, BBC, Financial Times, as at March 2019.

  Click here for part IV

Callum Abbot is the portfolio manager for the JPM UK Equity Plus Fund


For Professional Clients only – not for Retail use or distribution

This is a marketing communication and as such the views contained herein are not to be taken as an advice or recommendation to buy or sell any investment or interest thereto. Reliance upon information in this material is at the sole discretion of the reader. Any research in this document has been obtained and may have been acted upon by J.P. Morgan Asset Management for its own purpose. The results of such research are being made available as additional information and do not necessarily reflect the views of J.P. Morgan Asset Management. Any forecasts, figures, opinions, statements of financial market trends or investment techniques and strategies expressed are, unless otherwise stated, J.P. Morgan Asset Management’s own at the date of this document. They are considered to be reliable at the time of writing, may not necessarily be all inclusive and are not guaranteed as to accuracy. They may be subject to change without reference or notification to you. It should be noted that the value of investments and the income from them may fluctuate in accordance with market conditions and investors may not get back the full amount invested. Past performance and yield are not a reliable indicator of current and future results. There is no guarantee that any forecast made will come to pass. J.P. Morgan Asset Management is the brand name for the asset management business of JPMorgan Chase & Co. and its affiliates worldwide. To the extent permitted by applicable law, we may record telephone calls and monitor electronic communications to comply with our legal and regulatory obligations and internal policies. Personal data will be collected, stored and processed by J.P. Morgan Asset Management in accordance with our EMEA Privacy Policy www.jpmorgan.com/emea-privacy-policy. This communication is issued in Europe (excluding UK) by JPMorgan Asset Management (Europe) S.à r.l., 6 route de Trèves, L-2633 Senningerberg, Grand Duchy of Luxembourg, R.C.S. Luxembourg B27900, corporate capital EUR 10.000.000. This communication is issued in the UK by JPMorgan Asset Management (UK) Limited, which is authorised and regulated by the Financial Conduct Authority. Registered in England No. 01161446. Registered address: 25 Bank Street, Canary Wharf, London E14 5JP 0903c02a825386b7

 

 

Callum Abbot

Portfolio Manager, JPM UK Equity Plus Fund , J.P. Morgan Asset Management

No comments yet.