Make a plan for every outcome, including… God forbid… more of the same.
ref: - "HSBC Says British Pound May Soar. Or Crash”,
Bloomberg Markets 19/11/19
Regulars will know that as a rule we've tried to avoid the subject
of Brexit like the plague, as much as anything else on the grounds that
whatever one's point of view on the matter it's just too sad to watch a nation
and a parliamentary system tearing itself apart. Of course, we've also steered
clear of it all because it seemed pretty obvious from the start that nothing
would be decided until the very last moment and therefore suggesting the likely
outcome, both for the markets and for the political arena, would be a mug's
game. On top of which, and this is very unprofessional, it quickly became
excruciatingly dull.
As it happens, here we are a very long time after the original
"very last moment" and guess what? When it comes to identifying the
most likely of a range of diametrically antithetical possible outcomes, we are
no better off than we were almost 3 ½ years ago when the British public last
made fools of the pollsters and of the ruling Conservative party leadership of
the time to vote "Leave" in the referendum. In fact, arguably those
possible outcomes are even more binary now that PM Boris Johnson has called a
general election, gambling on getting a parliamentary majority for a
Conservative party shorn of the doubters and committed to his own Brexit
position.
Yesterday David Bloom, global head of HSBC's foreign-exchange
strategy, told Bloomberg that even now anything could happen, with implications
for the British Pound ranging from disastrous, through moderately bad to
extremely supportive.
We should probably remind you that Mr Bloom gave his views before
the first TV debate between Mr Johnson and Labour party leader Jeremy Corbyn
last night. Not that it has much relevance, mind you … despite all the attempts
of the media to "big" it up, this was a predictable no-score draw and
one that was pretty painful to watch (by all accounts!). When these live,
pre-election TV debates were first introduced they were hailed (at least by the
media that was staging them) as a great advance for the democratic process. Really???
We're not at all sure that the often distressingly low standard of
debate and the surrounding hoopla that often looks like it's been imported from
the Jerry Springer studio next door doesn't have precisely the opposite effect.
But that's a discussion for somewhere else…
So back to the level of UK Sterling, which has been the best
performer of G10 currencies over the last quarter by some distance. That's not
totally surprising… whether on the upside or the downside, the very nature of
the Brexit shenanigans has meant that the British Pound is very often the
biggest mover in either direction. Although off a touch this morning, this
quarter it is up over 5% against the Dollar and nearly 4% against the Euro, all
on the back of an increasing belief that we will see some kind of Brexit
resolution at the end of all this. Mr Bloom reckons that the prospect of EITHER
rubber-stamping Boris' current deal proposal (Conservative win), OR a new
referendum (Labour win) will, in their different ways, put an end to the
politicking and bring some certainty to the piece.
Mmm… that MAY be the immediate effect but we're not totally
convinced that a new referendum is bound to lead to a UK standing four-square
behind one course of action whichever one is chosen. It's unlikely, in fact.
But the most popular view is that 1.) a Conservative majority would be the
best outcome for Sterling "as it would enable Johnson to push through his
deal in time for the Jan 31st deadline and move forward with negotiating a new
trade deal with the EU". 2.) a Labour win on a manifesto of
huge rises in public spending, widespread nationalisation and tax hikes for the
rich that might engender capital flight would naturally damage the Pound, and
3.) a hung parliament with no majority for either of the main parties would be
the absolute worst-case scenario… then the UK really would be back in the mire
and "lost in the wilderness"… back to square one, as they say.
Okay, that's all very well but put some numbers on it. Mr Bloom
obliges with his best-case scenario bringing the possibility of UK£ / US$ at
$1.45, and worst could see it down to $1.10.
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