Please find below our Weekly Market Update for the week ending 11th October 2019.
Blue Sky Comment
The most bullish since records began!
Now we are in October and approaching the deadline of 31st October in Brexit terms, we thought we would share with you an article on Bloomberg this morning commenting on how the markets are interpreting the likely outcomes.
Apparently, traders of Sterling are more optimistic – or worried – than ever before that a Brexit deal is possible, if derivative pricing is anything to go by.
Options show that investors are the most bullish regarding Sterling, on a one month basis, since Bloomberg began compiling the data in 2003. Yesterday’s upswing is a result of positive comments emanating from the meeting between Boris Johnson and the Irish Premier Leo Varadkar. The announcements led to risk reversals as traders unwound bets that Sterling would weaken.
It must be emphasised that this is only a short term move but it is an about turn on the anticipated direction of Sterling over the month. However, there is still a demand for downside protection on the currency.
A further improvement in market sentiment could come from trade talks between the US and China which would likely lead to a strengthening of the pound.
EU leaders will meet next week for a summit that may determine whether Britain will reach a deal, seek an extension or head for a hard exit. The latter would likely wipe 10% off the value of Sterling.
We have spoken about UK smaller Companies lagging the larger cap indices. If there is positive progress towards a structured deal, expect this sector to dance in tandem with the pound.