(26 MARCH 2019)DAILY MARKET BRIEF 1:Brexit out of control

After the UK Parliament took control of Brexit on Monday, the pound sterling stabilised at around USD 1.32, showing that all options remain on the table. Investors are buying short-term protection against a depreciation of the pound: 1-week implied volatility rose to 16%, while the 25-delta risk reversal measure eased to -1.44% from -0.30 a week ago. In equity markets, reaction was similar with the Footsie edging up 0.02%. Overall, the UK outlook has barely changed: Brexit needs to be addressed!

Prime Minister Theresa May lost control of Brexit on Monday, when Parliament voted (329 versus 302) to grant itself votes on a series of alternative solutions, ranging from leaving without a deal to holding a second referendum. Given that most parliamentarians are in the “remain” camp, the worst that can happen is a soft Brexit. We won’t be surprised if Parliament pushes for a second referendum. It wouldn’t be the first time that a country’s initial decision about the EU is not respected (see France’s and Netherland’s rejection of the EU constitutional treaty in 2005).