Brexit Deadlock Again Sends Market Indices And British Pound Lower

In a recent development to ongoing Brexit saga, the UK and European blocs on October 13, 2019, said that a lot more work is needed to arrive at an acceptable Brexit deal. British PM Johnson told his cabinet that a last-minute agreement is still possible as both sides are in intensive negotiations to avoid a disorderly form of Brexit, scheduled by the end of this month.

Boris Johnson also stated that there was a way forward for a deal that could secure interests of all affected parties, but that there is still a gargantuan amount of work is required to get there, and the country must remain well prepared for withdrawal without an agreement as on the scheduled Brexit date of October 31, 2019.

London further revealed that the latest talks with EU bloc was constructive and there would be more talks on October 31. The PM still optimistic that a deal will be get secured in time with the EU leaders, but he has a tough task to satisfy widely divided British Parliamentarians and get them to ratifying the arrangement, probably by October 19, 2019.

And, if the PM succeeds, the world's fifth-largest economy would part ways with its biggest trading partner with an arrangement in place to arrest border disruption and maintain essential supplies to sustain the economy.

Meanwhile, many have argued that an extension to Brexit is still required if an agreement gets hammered out in coming days, as time would still be required to smoothen the deal.

The European Commission head- Jean-Claude Juncker commented that it is up to the Britishers to decide whether they ask for further extension, but if British PM were to ask for extra time, which possibly he won't- “I would consider it unhistorical to refuse such a request”, he added.

Many have earlier predicted that if Britain crashes out of the EU bloc without any withdrawal agreement, there could be serious near-term to mid-term catastrophic disruption in food, fuel and medicine supplies with the possibility of long-term damage to the UK's reputation as a stable destination for foreign investors.

Broader indices of the LSE turned negative on Monday (October 14).

Almost every index at the London Stock Exchange was oscillating in red with FTSE 250, and FTSE 350 are the biggest losers. At the time of writing (as on October 14, 2019, before the market close at 10:24 AM GMT), the blue-chip index of 100 large corporations was trading 44.7 points or 0.62% lower at 7,202.34, the mid-cap index FTSE 250 was the biggest loser at the LSE and trading 274.84 points or 1.37% lower at 19,766.87, the FTSE 350 index fell of 29.80 points or 0.74% to 4,019.81, the AIM Index FTSE AIM All-Share trading 1.51 points or 0.17% lower at 867.77 and FTSE TechMark focus declined 9.94 points or 0.19% to 5,285.71, respectively.

This volatility in the UK's financial market is likely continue till the time a final commentary regarding the nature of withdrawal deal emerges. However, UK's volatility index FTSE 100 Vix Index at the time of writing trading near its one-month low level of 10.96. However, it was trading higher from the past three month's lowest level of 8.50 but was substantially below the past three month's highest level of 15.67, respectively.

Sectors like Basic Materials, Financials, Utilities, Industrials, Consumer Cyclicals, Energy, Telecommunication and Technology were the laggards on the broader the FTSE 100 index; however, healthcare and consumer non-cyclical managed to trade in the green.

Sterling Pound extended losses of the previous trading session in today’s session.

Post the October 13 announcement, the British currency opened lower against the greenback's previous trading close at 1.2623 and at the time of writing (before the market close at 11:03 AM GMT), currency pair GBP/USD was quoting at 1.2561, falling 0.68% against the yesterday's closing level. In past one-month time, GBP/USD has registered a high of 1.2707, and a low of 1.2195 and in the last one-month Pound has surged approximately 0.4719%. At the current trading level GBP/USD pair tending towards the lower Bollinger Band®, which indicates that some more correction could take place in near-term; also the pair is trading below its short-term support levels of 21 and 50-day Exponential Moving Average Prices, which reflects a downtrend in the pair. In the year-ago period currency pair has touched a 52-week high of 1.3385 and a 52-week low of 1.1959, respectively.

Also, Pound corrected against the Euro Zone’s Euro, at the time of writing, before the market close at 11:10 AM GMT, GBP/EUR quoting 0.70% lower at 1.1379.

British currency will remain volatile until clarity comes on the nature of the Brexit deal; however, despite how well Brexit is negotiated, volatility will continue to remain in the near future.

With only 17 days left for Brexit, uncertainties are still high and investor sentiments subdued across the UK and EU. However, there is an increasing probability that the deadline will get further extended from October 31, 2019. It is high time to come out of this deadlock, as it is really dragging the British economy against its peers, investors are sceptical of putting fresh money in the UK, manufacturers have taken a wait and watch stance, consumer sentiment is down and people are avoiding big-ticket purchases.

Meanwhile, market is eyeing the Queen’s speech, scheduled today (October 14), as she is going to announce a series of new legislative reforms to UK’s judicial system, along with British PM Johnson who is going to present his post-Brexit plan.

A couple of weeks ago, PM Johnson was accused of dragging the Queen into this Brexit deadlock by asking her to suspend the House of Commons. However, after the apex court of the UK rebuffed PM Johnson’s plans to suspend the British Parliament, he now says that Queen’s speech is needed to allow him to present his post-Brexit plan.