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On the latest edition of Market Week in Review, Senior Quantitative Investment Strategy Analyst Dr. Kara Ng and Rob Cittadini, director, Americas institutional, discussed the latest developments surrounding Brexit, recently released economic data from China and U.S. Federal Reserve (the Fed) Chair Jerome Powell’s remarks on the state of the economy.
Tumultuous week in UK as Brexit saga continues
The week of Nov. 12 was a political rollercoaster on the Brexit front, Ng said, beginning with the publication of a draft withdrawal agreement—between UK Prime Minister Theresa May and EU leaders— spelling out the terms of Britain’s looming exit from the EU. UK bond yields and the British pound initially rose Nov. 14 upon the news that May had secured cabinet approval of the deal—only to plummet the next day when a string of ministers resigned in protest over the proposed agreement.
“As measured against the U.S. dollar, sterling at one point was down 2% on Nov. 15,” Ng noted, adding that the volatility also spread to UK equity markets, with the FTSE 100 off 2% at week’s end, in comparison to the previous week. The uncertainty plaguing the Brexit talks has been quite disruptive to businesses, she said, because neither Britain or the EU are prepared for a no-deal Brexit—and yet such an outcome remains possible.
In the view of Ng and the team of Russell Investments strategists, however, the more likely scenario is that the British Parliament will eventually approve the Brexit deal—meaning the UK would leave the EU on March 29, 2019, with a withdrawal agreement in place. Why? “We see parallels between the initial reaction to the Troubled Asset Relief Program (TARP) by the U.S. Congress in 2008, and the proposed Brexit deal’s reception in Parliament,” Ng said, explaining that Congress first rejected TARP, only to approve the legislation days later following severe negative reaction in U.S. markets.
