They say a week is a long time in Politics, well one year certainly is a long time in the markets. The 365 days since the surprise referendum result has seen a new “Brexit means Brexit” Prime Minister, a surprise general election result that introduces, Soft, Pragmatic and Transitory Brexit scenarios , the collapse of sterling and the rise of UK stock markets. But where do we go from here?
The political situation continues to dominate the economic situation and only today the UK’s opposition leader Corbyn is ahead in a poll by YouGov, published in the London Times newspaper. The question posted was simply “who would you prefer as UK PM?” to which 35% of respondents said they would prefer Corbyn and 34% said there would prefer May. The poll illustrates May’s fall from grace. Next week’s House of Commons vote on May’s minority government’s legislative program is now a major focus. A salient upshot of this political dynamics is a softer attitude towards Brexit, which appears to be backed up by popular support. A recent poll by Survation (the company that called the General Election correctly) showed that 53% of people would now back a vote on whether to accept the terms of the final Brexit deal, with 47% opposed. The same vote in April showed that 54% were against a second referendum.
The uncertainty surrounding the minority government, Brexit negotiations, rising inflation and in the words of the Mark Caney this week “anemic” growth in real wages, pressure remains on the GBP.
The Weekly chart for the last year plots a strong resistance at 1.3000 and 1.3300 with support at 1.2500 and 1.2200. We remain short to 1.2550.
Conversely the UK stock market has performed robustly, the UK100 has accrued over 23% in the last year rising from a little over 6000 to 7410 today. The direction of the pound has had a direct correlation to the UK100 as a large proportion of profits for UK 100 companies is made in USD. If sterling weakens then dollar revenues, once converted back into sterling, are worth more. 71% of revenues generated by UK100 companies are generated outside of the UK. The logic suggests that as sterling depreciates then this aids the rise of the UK100, equally a rise in the value of the pound weighs on the UK100. Technically, the UK 100 remains Bullish in the higher time frames as long as the index remains in the upper half of the Bollinger bands and north of the 20 period moving average. We have no positions on the UK100.