How the UK market and buyers reacted to the Brexit deal
The UK economy has been wavering for months as markets watched the Brexit negotiations with unease. With both sides stubbornly refusing to compromise, it became more and more likely that Britain would leave without a deal and leave trade with a very uncertain future.
However, the UK and the EU managed to find common ground at the last minute and an agreement was reached. It’s not quite the finished item; Many of the clauses are nothing more than an obligation to find a reasonable future solution. This means that Brexit negotiators will continue to be busy working out the final details over the next few months. One of the sectors that remained suspended is financial services; With London as the global finance and trade hub, the details of an agreement will be complex.
But what do investors think of the deal so far? And has the market raised concerns about the lack of complete clarity?
British Prime Minister Boris Johnson came under heavy pressure to sign a free trade agreement with the EU. Photo credit: shganti777 / Bigstock.com
The news that a trade deal had been agreed was immediately reflected in market sentiment. In the first meeting after opening, the FTSE 100 jumped to its highest level since March 2020, trading just below 6650.
It wasn’t just the top index that rose on the London Stock Exchange; The FTSE 250 also hit a 10-month high and the All-Share Index rose 2.1%. The forex markets reacted in the same way to the news, with the pound gaining ground against the dollar.
While the deal is not the ideal solution for many, the relief in avoiding WTO terms was palpable as many experts cited it and removed the uncertainty as the main reason for the buoyant mood.
Slow and steady return
The deal gave UK investors an immediate boost, but it may take a little longer for global investors to follow suit. Many are expected to wait and see how the new UK-EU relationship turns out in reality before putting their money back on the domestic market.
UK equity funds have had a hot time since 2016, but cheap prices and positive – if humble – sentiment could offer growth opportunities. Further information and tutorials on CFD can be found here on the Internet.
European Commission President Ursula von der Leyen said it was time to deviate from Brexit. Photo credit: Belish / Bigstock.com
A little hesitation
Despite all the optimism, there was only one word of caution for the financial sector: banks and financial institutions did not do quite as well as other stocks.
The sector is one of the main areas where no progress has been made on a deal. The two sides merely agree to act sensibly and with good intent. This tentative pact was considered sufficient to finalize a trade deal, but the reality is that much remains to be found out.
The first winners are likely to be domestically focused companies, with a stronger pound providing growth. Multinational corporations, and financial firms in particular, should see an U-turn at some point, but that could take some time, and certainly not in the first quarter of 2021.