Pound Set For Solid Gains After Tumultuous Week For UK Politics

Pound Set For Solid Gains After Tumultuous Week For UK Politics

XTB  | Mar 15, 2019 11:17

As we approach the end of what has been a busy and head-spinning week on Brexit it's worthwhile taking a step back to summarise.

A series of votes have seen parliament reject PM May's deal and a no-deal Brexit before agreeing on an extension to Article 50.

Another meaningful vote on May’s deal is scheduled for next Wednesday (20th March) - if it is passed the UK will seek an Article 50 extension to June 30th, if it is rejected once more then the UK will seek a longer extension (somewhere in the region of 1 year+).

So what does this all mean for the pound?

Broadly speaking it's good news. The worst case scenario (no-deal Brexit) now looks highly unlikely, which means that either May's deal is passed or an even softer version is pursued during the longer extension.

GBP is higher against all its major peers on the week, gaining the most against the JPY (2.2%) and also set for sizeable gains against the USD (+1.7%).

Predicting what will happen next for Brexit has proven to be something of a fool’s errand ever since the referendum, but if forced to take this risk and make a forecast then the most likely outcome appears to remain May’s deal passing (just) and a short extension of the Article 50 deadline.

UK Stocks close to 5-month highs

While unlikely, it is worth noting that there remains a slim chance the other 27 members of the EU won't provide the unanimous support needed for an extension, which would see the UK still leave the EU without a deal on March 29th - unless Article 50 is revoked.

It’s also been a good week for UK equities with stocks in London showing considerably less intra-day volatility than the currency markets in their move higher and the benchmark is once more closing in on 5-month highs above the 7200 handle.

Wetherspoons (LON:JDW) shares look through drop in earnings

There’s been a swift recovery in the stock of Wetherspoons following a soft start after shares began lower following the latest trading update.

The interim results showed a 19% drop in pretax profit, to £50.3m for the 26 weeks to 27th January despite a rise a rise in revenue of 7.1%, to £889.6m. Margins appear to have been squeezed due to increased labour costs, with the operating margin falling to 7.1% from 8.9% prior. Free cash flow almost doubled to £71.7m, largely thanks to the timing of payments to supplies, although this is unlikely to provide a lasting benefit and will probably reverse by year-end.

Shares in Wetherspoons remain firmly higher year-to-date and while the investors would have hoped for a more positive set of results, there’s not any major concerns that have been revealed.

XTB

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