D-Day for Sterling

By 22/11/2019News
Sterling and Brexit

22.11.2019 – Special Report. The 12th of December is approaching and with the election of the House of Commons in Great Britain the further course in Brexit will be decided. And thus also for the British pound. Traders should keep an eye on the matter.

Possible Bull-Run at Sterling and Brit Shares

The sky is the limit: If the forecasts are confirmed and the Tories win a phenomenal election, then the Pound Sterling will probably rise against the Euro and Dollar. Prime Minister Boris Johnson has meanwhile signalled that there will be no chaotic Brexit, thus eliminating a fear of the market. And if Labour were to be defeated at the ballot box, he could, from a position of strength, clarify all the details with the European Union without being held back by blockades in the House of Commons. The result should be an economic policy that is favourable to the economy and to the stock markets. This would not only focus on long trades in “Cable”, but would also ultimately delight the cops in FTSE-100. But one after the other.

Left turn from Labor

Neither the Tories nor Labour have officially presented their final election programmes. However, Labour leader Jeremy Corbyn has already announced a drastic increase in social spending and construction programmes. The question is who should pay for this – tax increases and/or higher indebtedness would probably be the result.

Stalinism light in London

The blog Mish Talk, which focuses on the electoral mood on the island, also stated that self-employed people are afraid of Corbyn. Not only business owners, but the entire financial world is apparently raging over Labour’s ideas. As just reported by “The Telegraph”, investors are storming the nationalisation plans of the Labour Party: The Royal Mail, Railways, Waterworks, Energy Utilities and Openreach, that’s the network arm of British Telecom – they’re all on the shopping list of the Left. Commentators have classified the proposals as the sharpest shift to the left in years.

Countering the Tories

Johnson, on the other hand, was poaching in the traditional Labour territory, i.e. among the lower income groups. He announced that if he wins the election, he wants to bring the social security allowances into line with the tax. Currently, workers pay National Insurance contributions if they earn more than £8,632; income tax is only paid from £12,000. The relief for the average worker would be around £4000 per year.

Hardly anyone wants Corbyn

It’s hardly surprising that Boris Johnson scores well with the voters. And Corbyn probably doesn’t do well at all thanks to his soporific functional habitus. Especially since he hasn’t yet made it clear whether he wants the Brexit or not.

The market wants Boris

It is also not surprising that the market has already signalled its preferences. If we look at the opinion polls compiled by MishTalk and oppose a chart of EURGBP, we can see a clear trend: shortly after Johnson was elected prime minister, Sterling has risen against the euro. The correlation between opinion polls and the strength of the pound was also confirmed by analysts at Bayern-LB and Commerzbank.


Economy speaks for the Pound

Economic factors also support the assumption that the pound will continue to rise. The euro is likely to weaken further, as a continuation of the loose monetary policy can be expected under the new ECB head Christine Lagarde. This is also supported by low inflation, which in October was just 0.7 percent in Euroland – the lowest level since November 2016. By comparison, the inflation rate in the current year is likely to just reach the Bank of England’s (BoE) target of 2.0 percent, as the Hamburger Sparkasse recently analyzed. The BoE last raised the key interest rate (bank rate) to 0.75 percent in August 2018. The next interest rate step is to be expected after the Brexit.
On November 7, the EU Commission lowered the GDP growth targets for the Eurozone and the EU as a whole for this year and the next two years. In contrast, the British statistics authority reported on 11 November a plus in gross domestic product of 0.3 percent in the third quarter. This prevented the island’s economy from slipping into recession, having contracted by 0.2 percent in the second quarter.

Bear scenario for Sterling

But it is by no means certain that Sterling will take off. On the one hand, because there are still about three weeks to go before the election. Furthermore, the conservatives could be forced to form a coalition government, which would dilute the share price. There is also the threat of a new Brexit referendum, which could ultimately knock everything down. And since the market doesn’t like uncertainty, Sterling and the London Stock Exchange are likely to disappear again. Especially since, according to Haspa, the BoE is likely to react to the “no deal” with a rapid cut in the key interest rate in order to mitigate the expected economic slump. And then there are the Scots: There is the threat of another referendum on the withdrawal from the United Kingdom.
As you can see, it remains exciting. If you trade stocks or CFDs online, you have to keep an eye on all the events surrounding the topic on your trading platform. The Bernstein Bank wishes you successful trades!


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