Markets not buying into PM's 'no-deal Brexit' threat

So Friday brought yet more 'no-deal Brexit' threats, this time from Boris Johnson. The PM's speech had us all watching nervously at a crucial time in talks, but the market seemingly had other ideas. The Pound did fall 0.5% initially across the board whilst Johnson was speaking, however that was as far as it went. By the afternoon, Sterling had recovered its position and is once again priced in favour of a deal being secured. 

So what happened? Well it looks as if traders are ignoring the 'game-playing' and firmly believe a deal is now likely. There is no other reason for the Pound no to take a huge hit otherwise. The problem is, the risk of a no-deal is still a very real scenario that would ultimately be catastrophic for Sterling. So for anyone with exchanges in the pipeline, you need to work out if you can afford to lose 4-5% on the Pounds current position, before making a decision to gamble on an agreement being made. As always, hedging (buy some now and the rest later) is your best tool to minimise your risk in this market. 

The new deadline being tipped by data houses is the 6th of November. This would leave 2-months for legislation to be drafted and passed before an agreement could be implemented. Although, I can see this going down to the wire and so expect the real deadline to be when the European Parliament meet on the 23rd of November. The next EU summit is being held on December 10th and if a deal hasn't been reached by this date, the sole focus will be on preparations for the UK to leave the EU in a chaotic way.

We are expecting to hear later today the new structure to talks between the EU & UK. There were various signs last week from EU leaders that the EU does want a deal. Dutch PM Rutte said "Brussels is ready to compromise" and German Chancellor Merkel commented "We also have to show a willingness to compromise". Even French President Macron's comments were somewhat positive "Fishing is not the issue why Brexit talks are failing". 

It's another rather quiet week ahead on the data-front as Brexit continues to rule the market. There are a few headline speeches spread over the week that will cause volatility and the UK's inflation figure tomorrow will be interesting. The key data comes Friday, as the EU & UK go head-to-head on PMI data. 

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