Market-Signals-Mays-Canoe

Brexit Markets: at low tide

Figure 1 should prove handy to Jeremy Corbyn who has confessed to not having read all 585 pages of Mrs May’s deal not read (full disclosure: I have not done so either) as well as countering some of the extreme comments swirling around. From an economic point of view, it invites both a half-ebb and half-flood tide interpretations. The most important omission is access to the Single Market but it would ensure an orderly departure with scope for some modest improvements during the next stage of negotiations (aka transition period). No wonder then, that big business, including professional and financial firms, has welcomed it: disruption was always the chief enemy. Over the longer-term they can relocate to the EU selected parts of their businesses and some already have (e.g. pharmaceutical companies) even if they would have preferred not to have to do so. Smaller firms will react according to whether and where they have overseas customers but even those with a non-EU focus will find that red-tape will not be cut and also that not much help will be coming from under-prepared and over-stretched Government departments. Business leaders may be publicly supporting Mrs May because their main priority is avoiding a ‘no deal’ exit but there can be little doubt that most would prefer Brexit to be abandoned altogether and may become more vocal if her deal is voted down in the Commons.

Uncertainty has been weighing increasingly heavily on companies of all sizes and sectors and inhibited business investment. After a surprisingly strong Q2 and month of July, GDP growth ground to a halt in August and September, with even the Labour Market showing signs of fatigue. Both Manufacturing and Service Sectors are struggling and the PMI surveys point to little change over the next few months. Average Earnings may be perking up but Retail Sales were negative in both September and October. Ominously, the sacred Housing Market is in retreat. Resolution of the Brexit agony will help stop the slide into recession but the timing and scale of the inevitable recovery will depend on the final deal. The immediate focus has, therefore, to be on political developments.

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Disclaimer: Economic Insights is written for commercial companies as well as institutional and other sophisticated investors and all opinions expressed in it are solely those of the author, Alastair Winter. Economic Insights is compiled from sources the author believes to have been reliable but it may not be complete or accurate on any particular subject. All opinions, estimates and analyses are or were produced at the date of issue and are subject to change without notice. Accordingly, none of the author, Daniel Stewart & Company plc, any one or more of its directors, employees and/or affiliates, makes any representation or warranty on any subject discussed in Economic Insights; nor do they accept responsibility or liability for any claim, loss, damage, expense or cost arising from reliance upon its contents, except in the case of death or personal injury. The value of investments may go down as well as up and any income derived from them may vary as is not guaranteed. This article takes no account of your personal circumstances and is not investment advice. You should consult a professional investment adviser if you have any doubts or require advice.

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