Brexit, Brexit, Brexit, hang on in there, nearly over.
The game of poker continues, Boris needs to appease the Eurosceptics, Barnier needs to show the pro unionists, he is playing tough.
Both parties continue the game of brinkmanship and the markets react quickly.
If you are a day trader, you probably love the swings of opinions, whatever the outcome, the volatility will continue as the press goes into overdrive. We all want to sell something!
So yesterday, some headlines.
Brexit: Boris Johnson and EU chief seek to break trade deal deadlock, BBC
Brexit: Boris Johnson to hold crisis talks with EC chief after 'significant divergences' on key issues. Sky news
Brexit talks falter as UK claims EU is hardening negotiating stance. Guardian
France derails Brexit talks with last-minute demands, Times.
Ok, this one is the most relevant to this blog!
Pound plunges as Brexit talks struggle, Reuters News Service
Sterling fell from a 2-1/2-year high versus the dollar on Friday. Even against a weakening Dollar, the days gains where wiped out in an instance.
The euro also turned higher against sterling after the Brexit news.
With less than four weeks left until Britain leaves the EU’s orbit on Dec. 31, both sides have said the talks are stuck on three areas, with each calling for the other to compromise to secure a deal governing almost $1 trillion of annual trade.
British Prime Minister Boris Johnson and European Commission President Ursula von der Leyen will discuss the state of Brexit talks on Saturday.
In late trading, the pound slid 0.1 per cent against the dollar to $1.3434 after hitting $1.3540, its highest since May 2018. It also slipped against the euro, which was last up slightly at 90.35 pence.
As sterling hit 2-1/2-year peaks versus the dollar on the expectation that there would be some sort of a Brexit deal, traders had ignored reports that the Bank of England could probably cut interest rates slightly below zero.
Sterling is see-sawing, sometimes wildly, on comments from British and EU officials on the likelihood of a deal as they try to reach agreement before a transition period ends on Dec. 31. The transition period began after Britain’s formal departure from the EU last January.
Traders’ nervousness was reflected in the derivatives market, as one-week implied volatility gauges – derived from the cost of options and incorporating risk posed by an EU summit next week – rose to their highest since March at 13.7 per cent. Two-week vols hit similar levels.
Look at the correlation with Sterling and the FTSE, weakening £, cheaper to buy UK based companies to the overseas investor.
Need more trading ideas?? The industries hit hardest by Brexit
Industries across the UK were not prepared for Brexit. Following the ‘leave’ result, they were forced to quickly rethink future strategies to avoid a sudden a drop in investment and revenue. International markets and investors panicked as the pound fell to its lowest level in 30 years, twice the amount it fell during the UK’s 2008 recession.
While it is likely that most industries’ finances will stabilise prior to rebuilding connections with foreign and domestic investors, the following sectors are at a higher risk of facing financial difficulties.
There has been a surge in British car manufacturing over the last 10 years, but it is likely Brexit will put any short-term gains on hold.
The UK’s automotive industry produces an average of 1.6 million cars each year. A total of 77 percent is exported abroad, of which 58 percent are sent to EU countries.
Toyota issued its response to the referendum last week, stating: “Back in 1992, Toyota chose the UK for its first major manufacturing operations in Europe because of the availability of skilled workforce and the presence of a strong network of suppliers.” The manufacturer went on to say, “We are committed to our people and investments, so we are concerned that leaving would create additional business challenges. As a result, we believe continued British membership of the EU is best for our operations and their long-term competitiveness”.
UK-based low-cost airline EasyJet saw a 20 percent drop in its share price following the Brexit vote
Following the ‘leave’ vote, UK-based airlines will have to rethink their European routes, in keeping with EU laws and regulations. They will also have to recalculate fares and routes, considering the cost of visas.
UK-based low-cost airline EasyJet saw a 20 percent drop in its share price following the Brexit vote, and has since discussed moving its headquarters overseas to an EU country.
A lot of UK-based pharmaceutical companies carry out their research and business overseas, which could cause logistical issues in the long term. However, the biggest uncertainty facing the industry is the impact on the regulatory processes and market authorisation of drugs in the UK.
The European Medicines Agency is responsible for the centralised authorisation of medicines valid in all EU countries, and although the UK also has its own authorisation process, it currently follows the EU’s drug regulations. The EU’s authorisation allows for the early approval of some drugs, providing faster access than the UK’s own process would.
Financial services sector
Shares in British banks were hit hard considering the leave vote, causing loans to surge and a slump in investment banking revenues. Regulators have warned that banks must consider restructuring their operations and carrying out added assessments.
The hardest hit in the sector were Lloyds, Barclays, and the Royal Bank of Scotland, which each suffered share price slides of more than 30 percent at the market open. However, trade began gradually recovered to 20 percent by the afternoon.
All four sectors will have to rely on maintaining strong relations with the EU and its member states to uphold stable trade deals with European countries, despite the outcome of the EU referendum.
Although traders were looking mainly to this weekend for a trade deal, investors are also looking ahead to the virtual EU summit on Dec. 10-11, another possible date for a deal to be agreed. But the sides have missed several deadlines and issues such as fisheries and state aid remain unresolved.
Some investors said negotiations could stretch into 2021 even though Britain has repeatedly ruled this out.
Expect the volatility to continue!