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Market Update

• Posted by currencies in Bremain, Brexit, coronavirus, Currency, Economy, Sterling, UK, Uncategorised
• September 15, 2020
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Boris Johnson’s controversial Internal Markets Bill (IMB) made it through the first stage of the parliamentary process last night, with the Government winning the vote 340 to 263, the Bill now moves on to the Committee stage of the process where we can expect the attempt to add amendments.

Boris has the votes in the commons for this now, especially given the likelihood that many doubters will abstain rather than vote against, the House of Lords will be a different matter. However, you would currently have to make it odds on to get through those stuffy halls too.

The critical point to remember is that this is a negotiating tactic, and it is unlikely that there will come a time when the powers contained within the IMB will be used.

The UK is unlikely to withdraw the Internal Market Bill ahead of the EU’s end of September deadline, and our expectation is that the EU will launch an infringement case through the Withdrawal Agreement Joint Committee as a result. That process would likely not conclude until the second half of next year. In the meantime, votes on amendments to the Bill will take place in the Commons early next week and it is not clear whether there is enough support for one or more of them to pass.

It is very likely, however, that the Bill will be amended in the Lords and sent back to the Commons. Johnson would be able to force the Bill through the Lords without amendment on the third attempt, provided he can maintain a majority for that in the Commons. That process will likely extend into October.

Although Brexit has been added to the agenda for the EU leaders meeting on September 24-25th , the October 15th EU Council meeting is where we would expect the UK-EU trade negotiation to be elevated to leader level. Our expectation is that we will see a series of emergency meetings from then onwards as the two sides attempt to find a compromise, they can both live with.

The TLDR being that this is all just noise until the negotiations are elevated to ‘Leader Level’, only when Macron, Merkel and Johnson are talking directly, and the clock is entering the final minutes will we likely see significant movement.

Beyond the very short-term we would see meaningfully lower odds of a “no-deal” Brexit than the market appears to be implying—the outcome would be damaging to the UK economy, and the Johnson government has used similar negotiating tactics before. For investors willing to look through some near-term volatility, current levels for Sterling longs now look attractive, in our view.