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Should PM’s Brexit bill be passed, UK financial assets and sterling will rally
Today’s the day. A crucial day for Brexit. The day of reckoning in Westminster as MPs are getting ready to vote later on whether to accept or reject the Prime Minister’s Brexit deal.
Mrs May deferred a parliamentary vote on her Brexit deal in December after conceding she was set to lose it. In order to win today, the Prime Minister has to conquer heavy opposition from across the entire political spectrum.
Should the deal be passed, the pound will rally sharply as the possibility of a no-deal scenario and /or months of additional uncertainty will come to an end.
In addition, sentiment towards UK stocks will rally, especially due to the attractive valuations of a large number of UK firms.
That said, a strong pound could lessen the impact on exporters as their earnings in dollars and euros, amongst other currencies, will become much less valuable in terms of sterling.
Therefore, the FTSE 100 could underperform small and mid-cap stocks during the relief rally following the passing of the PM’s Brexit bill.
In contrast, should Mrs May lose this evening’s vote, as is widely predicted, the pound and UK financial assets will, in all likelihood, be unmoved since this is forecast… the markets have priced it in.
However, a substantial loss for the PM’s bill, by around 40 votes let’s say, could result in a further fall in the pound and negative sentiment towards UK stocks. Of course, financial markets do not favour political uncertainty.
Should the Prime Minister suffer defeat this evening, Labour party leader Jeremy Corbyn will push towards a general election.
Another election in Britain at this time would likely spook markets and have a direct negative effect on the pound, the FTSE and UK financial assets generally in the short-term.
Although, if Theresa May’s Brexit bill is passed, there is the possibility for a large relief rally for UK financial assets and sterling.
However, as the hours go by, this is looking increasingly unlikely.