Brexit Deal- To Be or Not to Be?

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Cable up 1% off Brexit news
US lawmakers try to work a deal
Nikkei 0.30% Dax 0.93%
UST 10Y 0.91
Oil $46
Gold $1827/oz.
BTCUSD $19191/oz.

Asia and the EU
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EU and UK negotiators continued to push on with Brexit negotiations even after last week’s failure to reach a deal and news of that helped fuel a rally in cable which barreled through the 1.3400 figure rising more than 100 pips in mid morning London dealing.

The EU and the UK negotiators appear to be down to the fisheries issue as the sole stumbling block to a comprehensive deal. Michel Barnier, the EU negotiator tweeted, “It is our responsibility to give the talks every chance of success. Never before has such a comprehensive agreement (trade, energy, fisheries, transport, police & judicial cooperation, etc.) been negotiated so transparently and in such little time.”

Both sides are clearly feeling the pressure to achieve the deal. In the UK only 30% of the voters are willing to walk away with no deal option while in the EU the prospect of a loose cannon UK creating highly divergent regulatory structure would be very destabilizing to the whole region as businesses will inevitably try to take advantage of regulatory arbitrage.

Still the fisheries issue remains a key thorn. According to Tony Connelly of RTE, “Currently a lot of fish caught in UK waters are landed in Spain or France for processing – London proposing to repatriate that practice. The UK also wants tougher regulations on who crews the fishing boats. Barnier said these discussions were “extremely difficult”. Spain and the Netherlands said to be very unhappy about these latest measures.”

The market continues to bet that a deal will be achieved and cable continues to hold the 1.3400 figure. Yet as many analysts have pointed out the risks in the trade are asymmetrical. With consensus view on the deal dominating trade much of the upside may already be priced in while a small but still possible prospect of a full bust could shave as much as 1000 pips off the pound as traders reprice the risks to the UK economy.

However, for the immediate horizon the bulls still control the flow and any scrap of progress could quickly push cable through the 1.3500 level this week.

Boris Schlossberg
Managing Director

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