The Brexit negotiations that started yesterday mark the beginning of 2 years of the extraction process of the UK out of the EU.
The beginning of the negotiation process doesn’t change much at the get-go – other than being symbolic of the official beginning of the Brexit process. In fact, it will take weeks or months for the negotiations to gain some meaningful traction. The no surprise element of the event ruled out an extreme reaction from the markets, but it does mark the beginning of an uncertain period as Britain negotiates to exit the EU with no precedents, more so with a divided parliament.
But the strength of May’s stance “no deal better than a bad deal” will weaken amidst a hung parliament – there are increased hopes of a softer Brexit, which could buoy the markets as negotiations make progress. Having said that, the pound remains vulnerable to political and negotiation uncertainties in the medium to long term, though tailwinds like rate hike possibility could possibly prop it up. FTSE 100 would continue to benefit from sterling’s weakness, though given the domestic uncertainty, strong companies with higher international exposure would be more sought after. The ongoing turmoil could, however, impact international investments into the market. Also, volatile foreign exchange movements and delayed investment decisions owing to policy uncertainty could impact corporate profits
No matter which party gets a leverage in negotiations, a collaborative rather than an isolationist approach would go a long way in ensuring the well-being of all the parties involved.
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