(12 JANUARY 2019)WEEKLY MARKET OUTLOOK 2:UK MPs Go To The Polls With A Clear Idea In Mind
One week before the House of Commons is expected to debate and vote on the Withdrawal Agreement, it seems clear that the likelihood of seeing UK MPs voting in favor of May’s divorce deal as rather low. Despite the effort made by Theresa May to receive concessions from Brussels and intensified talks with President of the EU Council Donald Tusk and President of the EU Commission Jean-Claude Juncker, hopes of complacency from the side of the EU is subdued. Only assurances rather than guarantees can be offered. Indeed, a vote in disfavor of the Withdrawal Agreement appears most likely on 15. January 2019 while the British pound, which recently made gains against the dollar (week-to-date: +0.60%) is expected to reach technical support of 1.25. As no alternative solutions appear to be favored among MPs, it seems pretty clear that in the event of a refusal, the House of Commons would be paralyzed and require further debates to come up with a consensus. PM May would be facing further pressure, as the date of the divorce of 29. March 2019 remains in place and the meeting of the EU General Affairs Council, taking place in 19. March 2019, would require a fully approved solution from the UK side before it could give its call. For these reasons, chances are that MPs would favor an extension of Article 50 in the end, which would postpone the deadline by end-November 2020 earliest.
Accordingly, in the scenario of an extension period, the most likely scenarios perceived are either a new referendum or a newly negotiated trade agreement, in a similar fashion than Norway. Under current circumstances, it appears difficult to estimate the direction of the British pound. We would therefore consider a sharp drop in GBP following upcoming vote as a first step while the second phase would strongly depend on whether the EU or the UK will be providing a constructive solution by 26. February latest (incl. 21 days objection period) after the refusal.
By Vincent Mivelaz
