Risk-On as UK and EU Strike New Brexit Deal

Stocks are rallying and safe-haven assets are declining which is strong evidence that today will be a “risk-on” trading session after European Commission President Jean-Claude Juncker said Britain had clinched a Brexit deal with the European Union, just a few hours before the start of a summit of the bloc’s leaders in Brussels.

Separately, British Prime Minister Boris Johnson said “we have a great new Brexit deal”.

Reuters is reporting that Juncker said in a letter that he would recommend that the leaders of the other 27 member states approve the deal, adding it was “high time” to complete the divorce process and move on as swiftly as possible to negotiations of the EU’s future partnership with Britain.

According to Juncker, the withdrawal agreement “focused on the protocol on Ireland/Northern Ireland and sought to identify a mutually satisfactory solution to address the specific circumstances on the island of Ireland.”

Nonetheless, the next challenge for Johnson will be getting approval in the British Parliament especially from Northern Ireland’s Democratic Union Party (DUP).

According to reports, DUP support is crucial in Johnson getting majority support. But shortly after the withdrawal deal was announced, the DUP said their earlier position of rejecting the fresh deal was unchanged.

Johnson said in a tweet that the new deal, which replaces the one struck by his predecessor Theresa May, “takes back control.” Johnson also urged Parliament to “get Brexit done on Saturday” when lawmakers are next due to meet.

If Johnson can’t get parliamentary support for his plan by Saturday, he must write the EU requesting a Brexit extension until January 31, 2020.

Markets Respond

Equities rallied on the news as well as the British Pound, which jumped more than 1%. At the same time, investors dumped their hedge protection, leading to weakness in the Japanese Yen, Gold and U.S. Treasury bonds. The U.S. Dollar is also getting crushed against a basket of currencies.

The price action strongly suggests that investors are betting on a positive outcome, and that today is likely to be a “risk-on” day.