PETER BROWN: The true market feeling on Brexit...is boredom

PETER BROWN: The true market feeling on Brexit...is boredom

Stock markets are confident that deadline will be extended, writes Peter Brown.

Markets are discounting mechanisms; they price-in what they know, into the assets in question, discount the "knowns" and look forward, not backward.

UK assets have a Brexit discount priced in for years now and the pound has also. Outside of the global equity sell-off there has been no further deterioration of the Ftse or sterling on the back of the recent political mayhem.

In fact, you could describe the markets as bored.

Traders deal in reality as much as possible and are normally very good at ignoring hype and spin, particularly if it comes from political sources.

We have gotten use to central bankers being the main source of information through the years of recession, via easy, market friendly monetary policies like quantitative easing. Politicians have been in the background.

Yes, Donald Trump is different, but even he now impacts little on markets despite having partially shut the US Government down, an action that has caused market meltdowns in the past.

The reality is the markets are in a very calm place.

We know the US stock market is overvalued so we are seeing a correction there, leading to other markets falling.

Corrections are commonplace and after a nine-year 335% rally what is a 20% fall - only a profit take. Gold and currencies are range-bound, the euro/sterling rate is trading at the same level it was this time last year.

The big global concern is the trade situation between China and the US. But we know President Trump likes markets and we feel a deal will be done and damage will be minimal.

Outside of that, we are worried about the slowdown in global growth and we are watching closely.

But, as for Brexit it is not a global concern by any means and certainly not a big issue in Asia or the US.

Very few in the market believe UK politicians are naive enough to crash out with no deal. That would be a monumental mistake, leading to financial chaos and deep personal loss across Europe, not just in the UK and Ireland.

All the jaw-boning about the consequences is in the political sphere, posturing scare mongering.

Let’s be honest, they love to be the focus of attention. It is not beyond the possibility they will blunder their way close to a catastrophe but hopefully there are serious business people in the background child minding them.

PETER BROWN: The true market feeling on Brexit...is boredom

As far as the market is concerned, the outlook seems clear. I said, when Brexit was announced, it would take six years and result in a can-kicking exercise for most of that time and ultimately may never happen.

The voting down of Theresa May’s agreement will result in a delayed Brexit, an election or no Brexit at all.

This March deadline is a line in the sand. What EU deadline was ever firm? We are still doing Greek bailouts; we just don’t talk about it much.

The market believes the deadline will be extended, regardless of the difficulties that might throw up. A year would be good, so we can all calm down - politicians I mean, we are calm already.

The market has been wrong before of course, as was seen with President Trump's election and even the Brexit vote itself.

But a no-deal crash-out Brexit?, I would be stunned if anyone is that stupid.

Peter Brown is founder of Baggot Investment Partners

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