The House of Commons have rejected the Brexit deal by 432 votes to 202. Mays proposition is such a fail, that no one wants to be in her trail. Without any doubt, this was the worst defeat for Theresa May. The question is how stubborn she is going to remain, currency traders are highly sensitive to this. Brexit without no deal is no short of biggest catastrophe in the British history.
Sterling took the U- turn on the back of this vote because investors are clear that there is no choice but to extend the Brexit date to avoid the Armageddon. We don’t believe Brexit is going to happen in March now. The 10-day implied volatility for Sterling-dollar looks overwhelmingly exciting and the option markets shows that the price is going to move higher. Bargain hunters have made their best trade yesterday and took the full advantage of the price drop.
However, we are not fully out of the woods yet, because for that to happen, we need to break the level of 1.2937 (against the dollar), a critical level for the bulls to be convinced that the price is going to move higher. If we fail to break this mark, it is likely that the price is going to test yesterday’s low 1.2668 or even test the 1.2482. However, I do believe that the chances of that are low and the price is going to move higher as long as the major resistance level of 1.30 is broken.
In the U.K’s domestic equity market, the move is extremely interesting. These companies are dealing with the Brexit torture for the past two year and Jeremy Corbyn calling for a “no vote of confidence” in the government is going to extend the time line of this uncertainty. Remember, if he comes into the power, there is a whole list of stocks which is going to underperform because of his policies. Royal Bank Of Scotland and Lloyds TSB could be the top victims. We have seen in the past investors selling these stocks on the possibility of the Labour government coming into the power.
You can never discount the fact that Theresa May has survived against most of the odds and the threat of the UK leaving the EU without any formal deal still remains a possibility. She has refused to leave the government. She needs to reveal a new plan immediately and any delay in this is going to hurt the economy extremely adversely. The main agenda should not be their own part differences. They should do what is best for the country and avoid the coming recession which will create a huge destruction. The question is if May can get something more from Donald Tusk, the European Council president. Of course, May’s hopes are that the EU will not be that resilient now and realistic changes could secure a majority.
