London Stocks Trade Mixed On The Revival Of A No-Deal Brexit Kind Of Situation

  • Dec 19, 2019 GMT
  • Team Kalkine
London Stocks Trade Mixed On The Revival Of A No-Deal Brexit Kind Of Situation

After bagging absolute majority in favour of conservatives, Mr Johnson announced that he would use the mandate to bring legislation that will prevent his government from any extension of the Brexit transition period beyond December 2020. This has further escalated a no-deal Brexit kind of situation, which in the past has brought big volatility in the market.

Especially, mid-caps are among the worst performers on the London Stock Exchange since December 17, 2019, the day PM Johnson vowed to bring a legislation to stop transition period; however, large-caps managed to trade in green as they were supported by the trade deal negotiated between the US and China recently.

However, after six straight days of positive trading, the broader index FTSE 100 traded marginally lower as on December 19, 2019, and at the time of writing at 10:58 AM GMT, the Footsie traded tad lower by 4.0 points at 7,536.70. On the other side, the mid-caps index the FTSE 250, that tracks more domestically exposed stocks, extended losses for the third consecutive days in a row and traded 17.0 points or 0.08% lower at 21,644.87.

Well the small-caps benchmark FTSE SmallCap extended gains for the seventh straight day and traded 3.08 points or 0.05% to 5,855.89.

Meanwhile, the European Commission president, Ursula von der Leyen said that British Prime Minister’s ambition to get Brexit transition completed by the end of 2020 would be extremely difficult, handing negotiators of both the sides a narrow headroom to achieve a withdrawal deal.

She also emphasised that Britain would have to suffer more pain in the wake of no-deal negotiated between both the bloc by the end of December 2020 and briefed European Parliament that the UK is once again heading towards uncertainties over Brexit deal.

However, in the same Parliamentary session, the Chief Brexit Negotiator said the future relationship negotiations could be completed with the current deadline and said that “we can’t do it all, but we will give it our all.”

One minister from PM Johnson cabinet insisted that there is sufficient time to fix a deal, but several EU officials have raised concerns over the new deadline and said that this would limit the scope of trade deal negotiations, as both, the sides have to be very pedantic on preserving the breakdown in core economic relations.

Britain has time till July 01, 2020, to seek any new extension request with the EU counterpart.

Sterling back to pre-election levels

PM Johnson’s recent pledge has further dented domestic asset classes in the UK, as after attaining a record high level since May 2018 on the date General Election results were declared, Pound registered a sharp reversal in trend and is back to the pre-election levels.

Also, GBP has been among the major currencies which witnessed huge volatility in the Forex Market over the last couple of weeks. After pollsters increased optimism over Conservatives’ victory in the December 12, General Election, it sent Pound to its peak levels of the year, and once results were out, it registered a high of 1.3516 against the US Dollar, a level last experienced in May 2018.

But that rally did not sustain very long after PM Johnson announced that he would use his mandate to stop any Brexit transition agreement beyond 2020, that further jolted investors and traders sentiment, as timeline to decide a comprehensive trade deal with EU bloc is very tight and in case if both the parties are not able to get a deal done, then again a no-deal Brexit kind of situation would come on fore.

Also, this time PM Johnson is carrying an adequate mandate to get this no-deal Brexit done through the British Parliament, which has again dampened the market sentiment with fear. Traders have bagged a solid return through currency trading and profit-booking post PM Johnson's comment drove GBP to a pre-election level.

At the time of writing (before the market close at 12:32 PM GMT), GBP traded 0.0022 pence or 0.16% higher at 1.3098 against the USD. After two straight days of fall, GBP was paring some of the losses, it accumulated in the past two trading sessions.

It also recorded large swing in the day’s trading session and touched an intraday high of 1.3133 and a low of 1.3057 against the US Dollars.

FTSE 250 registered a lifetime high of 21,935.33 on December 16, 2019, and then pared around 300.0 points.

After a stonking majority handed to Boris Johnson-led Conservatives, it was expected that the FTSE 250 would go well beyond 22,000 levels, because the index was in an uptrend since the General Election announcement by the PM Johnson as on October 28, 2019, and pollsters were fuelling the rally through their opinion polls surveys which were giving a clear majority to the Conservatives. The day after general election results were out, FTSE 250 index touched a 52w as well as lifetime high of 21,935.33 and managed to end the session above 21,900.0 levels, which clearly reflected that market strongly appreciated the mandate and investors got an impression that now a no-deal Brexit was completely off the table and this mandate would make things easier going forward.

But investors’ celebrations could not last for long, as on December 17, 2019, PM Johnson insisted that he will get Brexit done by the end of next and will not allow the transition to go beyond December 2020, which rattled investors, as the timeline is very small for negotiating a comprehensive deal with European Union on future relationship, which consequently dragged the mid-caps on December 17, 2019, extending losses on December 18 and was still edging lower as on December 19, 2019.

At the time of writing at 01:03 PM GMT, the index traded 18.0 points or 0.08% lower at 21,645,75 and at the current level, the index traded 289.0 points or 1.3% off those lifetimes high.

Phase-1 Trade deal between the US and China supported the trend in the large-cap benchmark “FTSE 100”

Trade war between the world’s two large economies which weighed heavily on the global economy since July 2018 and had brought slowdown and jobs cuts across the world, partially giving some relaxation after both the large economies (the US and China) signed a Phase-1 Trade deal, which has given some sort of relief to the global market and prevented the global economy from a recession like situation.

However, this event was largely priced into large global company’s stocks, as they had suffered the most during that period. Shares of these companies shot up and recorded a reversal trend.

FTSE 100 index is also considered as a global index because the majority of the index's stocks are global companies, and their revenue streams have diversified globally. Therefore FTSE 100 stocks were edging higher at the London Stock Exchange, as their risk exposure towards the Brexit is relatively lower than the mid-caps or domestics companies.

The index has been up for the seven straight days, and at the time of writing at 02:30 PM GMT, the FTSE 100 index traded 11.0 points or 0.14% higher at 7,554.43. Also, a home currency depreciation against the US greenback is supporting the trend as devaluation in GBP would lead to boosting their earnings.

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