Financial Markets Relatively Calm as Boris Johnson Pledges Not to Negotiate Brexit Delay

It’s too early to tell if the reaction we are seeing early Monday will hold true throughout the week, or if this is just the calm before the storm. It’s no surprise that the British Pound and Euro are trading lower since they will be the currencies most affected by the Brexit news. The mild price action suggests light position-squaring is taking place. The moves in the Yen, Franc, gold and Treasurys suggests investors aren’t too concerned about the weekend events at this time.
James Hyerczyk
Brexit Calm

The financial markets are relatively calm early Monday, following a delay to a crucial Brexit vote and a new request to extend the deadline on Saturday. The early price action suggests that while there are some lingering concerns, investors remain positive ahead of the October 31 deadline. However, there are still some doubters, which could complicate matters and generate renewed volatility as we approach a second vote later this week and the October 31 deadline next week.

Markets Response to Brexit Vote

As far as the early response by investors is concerned, the British Pound slid against the U.S. Dollar as currency markets opened in Asia early Monday morning.

Asia Pacific stock markets traded mixed as Brexit developments over the weekend created further uncertainty over the United Kingdom’s impending departure from the European Union. However, U.S. equity futures markets edged higher, which could be a response to positive comments from President Trump late Friday and China’s chief negotiator on Saturday.

When you have an important geopolitical event like Brexit, I think it’s important to watch the so-called safe-haven assets because they often reveal what investors are really thinking.

At 02:17 GMT, December U.S. 10-year Treasury Notes futures are trading slightly lower, which means yields are edging lower. This suggests little concern at this time over Brexit. Another safe-haven market, and one with an international appeal is gold. It’s inching lower by 90 cents.

The Euro opened lower and hasn’t recovered early in the session. However, the U.S. Dollar is moving higher against the most well-known safe-haven currencies, the Japanese Yen and Swiss Franc.

It’s no surprise that the British Pound and Euro are trading lower since they will be the currencies most affected by the Brexit news. The mild price action suggests light position-squaring is taking place. The moves in the Yen, Franc, gold and Treasurys suggests investors aren’t too concerned about the weekend events at this time.

Positive Outlook

Analysts at Deutsche Bank said in a research note that “the outlook for Brexit resolution remains constructive,” explaining that the makeup of the voting on Saturday actually meant that Johnson could receive enough backing for his deal at a later date.

Goldman Sachs, meanwhile, lowered the probability of a no-deal Brexit to 5% from 10% on Sunday, according to Reuters, maintaining its view that the country will leave the bloc on October 31.

Negative Outlook

Former United Kingdom Independence Party leader Nigel Farage, who launched the Brexit campaign in the U.K., said Sunday that the anger among British voters regarding the latest developments with the Brexit deal is “unlike anything I have ever seen before.”

Appearing on “Fox & Friends” from London on Sunday morning, Farage said he believes the country still wants to leave the European Union; however, members or Parliament “have broken all promises they made to the people.”

Calm before the Storm

It’s too early to tell if the reaction we are seeing early Monday will hold true throughout the week, or if this is just the calm before the storm.

As required by law, Johnson sent an unsigned letter to the EU late Saturday seeking a delay to Britain’s upcoming October 31 departure from the bloc, but then sent a signed letter saying he does not favor another Brexit extension.

“My view, and the government’s position, (is) that a further extension would damage the interests of the U.K. and our EU partners, and the relationship between us,” Johnson wrote to European Council President Donald Tusk.

Johnson has long stated that he plans to take the U.K. out of the EU on October 31 come what may, and his minister in charge of Brexit again emphasized that position.

I believe the volatility will return to the markets this week when the EU makes its decision about the extension. Extend or Not to Extend? That is the question.

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