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Brexit Is Coming

Brexit is coming, Brexit is coming … well maybe. in June of 2016, when the UK voted to leave the European Union the British pound/$US cross broke and broke hard. Markets, especially the futures markets, doled out immediate consequences to outcomes that were not expected.

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We are going to explore this in more detail in our webinar on Thursday. Feel free to join us.

Fast forward to March 2017 when the UK invoked Article 50. The British pound/US dollar cross kind of shrugged it’s shoulders. As we know, Article 50 (a declaration of divorce if you will) triggers the timeline for an expected departure from the EU. Unlike the actual election, this outcome was assured as part of the “regulatory” process. As a result, the market did not act in an extreme manner as you could tell by the chart below.

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The US equity market as well as the US bond and gold markets all react in a similar manner, evaluate where the likely risk is and price your assets accordingly. Unless of course the outcome is uncertain or surprising – then immediate consequences happen!

As of today, the whole mess seems half-baked, however, believe it or not, both the UK Parliament and EU officials are very capable.

Going forward in October there's several key dates which can cause either market harmony or unusual volatility. October 14th starts the new session of parliament, which will, in all likelihood, spark a new news cycle of accusations, rumors, maneuvers and potential actions. October 17th - 18th the European Council will have a meeting on any pending proposals. On October 19th, if there's no deal the UK by law is required to request an extension from the EU -- as Boris Johnson has promised to do. The EU could agree or poke the UK in the eye. This is where the rubber meets the road. Keep an eye on the Euro FX and Sterling. The Pound should benefit from a deal and real time pricing will be evident in the futures market (symbol – 6BZ9).

If there is a deal, UK parliament is scheduled to vote on October 21st. However, the British are not keen on deadlines and I say this with great affection.

The supposed hard exit or Brexit date is October 31st. Happy Halloween.

In the event, that there's any type of deal by October 31st (extension or Soft Brexit) the market should actually respond with some semblance of normalcy. Although asset price readjustments will certainly occur over time as trade relationships will shake out. However, in the event of a hard Brexit, In other words no deal, then all bets are off and I anticipate some serious market dislocation.

Finally, don’t be surprised in a never-ending extension occurring which will favor the EU. It’s always easier to put something off you don’t want to do – ask my son’s math teacher!

We are going to explore this in more detail in our webinar on Thursday. Feel free to join us.

Risk: Trading Futures, options on futures and retail off-exchange foreign currency transactions involves substantial risk of loss and is not suitable for all investors. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge, and financial resources. Past performance is not indicative of future results.