Sterling, shares gain as investors bet UK will delay Brexit

Sterling, shares gain as investors bet UK will delay Brexit

Sterling and stock markets showed no panic despite Tuesday night’s political chaos at Westminster, as investors bet that Brexit would be delayed to avoid Britain crashing out of the EU.

The UK currency strengthened against the dollar and the euro, while both the Ftse 100, which has many international firms, and the much broader Ftse 350, with its UK-focused firms, both ended only slightly lower.

At 88.58p, sterling showed little of the expectations that Britain was heading for a no-deal exit from the EU at the end of March.

The Iseq ended around 1% higher.

Irish shares exposed to earnings in Britain, such as Ryanair and Bank of Ireland, which in the past had been hit hard at times of high Brexit political tension, were little changed or rose strongly.

Irish housebuilding shares rose after their UK counterparts gained. Cairn Homes and Glenveagh rose by over 2%.

Peter Brown, financial adviser at Baggot Investment Partners, said the markets were signalling that Britain’s Article 50 exit process would be delayed, to July at least. “The markets are not panicking. They do not believe that people can be that stupid and cost hundreds of thousands of jobs by crashing out,” said Mr Brown.

“The markets’ view is that it will not be a hard Brexit. The [March] date will be kicked out and [will] let everyone calm down,” he said, adding the Brexit date could be extended until after the European Parliament elections in May, and “could be extended continuously” thereafter.

Capital Economics in London said Theresa May’s heavy defeat over her withdrawal deal in the Commons had strengthened the chance of a “fudge and delay” outcome, under which Article 50 is extended.

It ascribes a chance of only 25% that Britain will crash out of the EU.

“Any extension to the Article 50 negotiating period might have to be longer than the three months assumed in our ‘fudge and delay’ scenario. We expect it will eventually lead to a softer Norway-plus style Brexit,” said the economics firm.

It added that the extension “could be six months or longer” because the UK parliament will need time to come up with a plan that is acceptable to most parties.

On the outlook for sterling, Capital Economics said: “We think that the favourable response of sterling to Tuesday’s resounding defeat in parliament for Prime Minister May’s Brexit deal is a sign of things to come.”

Chris Beauchamp, the chief market analyst at online broker IG, said a range of UK companies had benefited from Tuesday’s nigh vote.

“As a no-deal Brexit recedes further into the background, housebuilders are looking like a more attractive investment — the combination of relatively undemanding valuations plus healthy dividends being too much for some to pass up,” said Mr Beauchamp.

Meanwhile, there were signs that the Irish consumer is becoming more cautious. A regular survey by Visa found that overall expenditure edged lower in December, despite the growth of online sales.

“Despite e-commerce reporting another sharp rise in December, this wasn’t enough to boost Irish consumer spending compared with December 2017,” said Philip Konopik, Visa’s Ireland country manager.

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