We have witnessed a second week of improving sentiment in global capital markets, with most equity markets trending higher and bond yields continuing their recovery. However, this was nowhere near the euphoria levels that appeared to grip UK and EU politicians after having secured consensus over another iteration of the UK’s Withdrawal Agreement from the EU. It would have been reasonable to expect a significant rise in the UK asset prices (which are undervalued relative to their global peers), given so many commentators already celebrated the ‘end of Brexit uncertainty’.
As it happened, it was once again the UK’s £-Sterling which became the focal point of the shift in sentiment. Just as the currency fell after the Brexit referendum in June 2016, it now rallied – although at a slightly more subdued rate of +4-5%. Given that there continues to be great uncertainty whether the new Withdrawal Agreement bill will find sufficient support in Parliament, the currency appreciation seems to be a reflection of the likelihood of an imminent ‘No-Deal’ outcome: the implied probability is now near zero. For further currency upside, and a general reappreciation of UK assets, the UK economy would need to be freed from more of the ‘uncertainty shackles’ that Brexit has created.
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