UK: Brexit certainty (temporarily) lifts sentiment

Macro

Christopher Dembik

Head of Macro Analysis

Summary:  Saxo's latest Brexit overview: improving market sentiment, Boris boom and limited risk of no-deal Brexit.


Tomorrow, I will be in Brussels to discuss with the EESC Brexit follow-up group Saxo’s macro outlook for the UK.

My Brexit base case scenario:

  • No-deal Brexit at the end of 2020 is unlikely.
  • Trade agreement: Phase 1, Phase 2 etc…for the next 5/10 years
  • High risk zone: June/July 2020
  • « Boris boom » is coming: Fiscal stimulus (March 11 budget) + rate cut by the BoE (March)
  • Negative spillovers to the EU are limited (positive sentiment, CB support, solid underlying fundamentals)

Here’s what we know for the banking and financial industry:

Limited staff relocation in absence of hard Brexit. Paris (front office activities), Poland and Ireland (back office activities), Frankfurt (administrative departments) and Luxembourg (funds).

In terms of jobs, the figure officially mentioned for France is 1,500 job transfers to Paris, but it is likely to be lower.

The ECB regulator is putting pressure on banks so that commercial and market activities for continental Europe are no longer processed from London. Ultimately, it is likely that London will remain the financial hub for UK and global (outside Continental Europe) financial operations.

Clearing houses are the most important sovereignty issue that has not yet been resolved. As of today, London is the main euro clearing market. In the context of Brexit, the ECB wishes to relocate these activities to Continental Europe.

In the interim, the ECB has granted a one-year extension until the end of January 2021 during which it recognizes UK-based clearing houses as “legitimate”, which should help find common ground. Ultimately, the most likely scenario is that UK-based clearing houses will be subject to “dual regulation”, both from the UK regulator and the ECB.

Access to the presentation.

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-hk/legal/disclaimer/saxo-disclaimer)

Saxo Capital Markets HK is a company authorised and regulated by the Securities and Futures Commission of Hong Kong. Saxo Capital Markets HK Limited holds a Type 1 Regulated Activity (Dealing in securities); Type 2 Regulated Activity (Dealing in Futures Contract) and Type 3 Regulated Activity (Leveraged foreign exchange trading) licenses (CE No. AVD061). Registered address: 19th Floor, Shanghai Commercial Bank Tower, 12 Queen’s Road Central, Hong Kong

By clicking on certain links on this site, you are aware and agree to leave the website of Saxo Capital Markets, proceed on to the linked site managed by Saxo Group and where you will be subject to the terms of that linked site.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc.

Please note that the information on this site and any product and services we offer are not targeted at investors residing in the United States and Japan, and are not intended for distribution to, or use by any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation. Please click here to view our full disclaimer.