Sterling, Extension and Election Polls

Everyone concerned is presently waiting on the EU to grant the UK an extension in the Brexit deadline from October 31. The Irish PM along with some EU heavy weights have made public their backing for an extension, out to January 31, though this will have to be agreed by all of the EU27 member states.

The widespread expectation is that they will, which is why Sterling is not crashing presently, as a refusal would risk a no-deal Brexit scenario at month end. UK PM Johnson met with opposition leader Corbyn earlier to discuss a timetable for ratifying the Brexit deal, with Parliament having voted to reject the government’s program bill to fast-track the legislative process. They failed to reach an agreement.

Johnson has stated that the government can’t go on and that he will call for a general election in the event EU permits a 3-month extension. He needs 2/3 of MPs to support this, being an out-of-cycle election.

As for Labour, some political pundits are surprised that the party isn’t pushing for a second referendum on EU membership rather than a general election given its poor standing in polling.

Overall, the most likely scenario from here is that the EU formally permits an extension and a UK general election is staged by early December.

In the currency market, Cable has recouped above 1.2900 level since New York session yesterday. According to ING, bulls could hope that Cable is going to make a massive rally through to 1.40.

“We see a Cable move to 1.40 being too much of a stretch this year – and if it were to happen it would probably involve us and the market massively under-estimating the size of the squeeze in short UK positions – those positions including equities, where fund managers have been underweight UK equities since 2014.”

UK polling ahead of likely general election.

  • Politico’s poll of polls shows PM Johnson’s Conservative Party to be out in front with 35% support.
  • The Brexit Party, which favours nothing but a “clean” — aka “no deal” (given the Northern Ireland border problem) — Brexit, are running with 11% support. Should the two form a coalition, their combined support is 46%.The Labour Party has 25% support.
  • The Liberal Democrats are in third spot with 18% support — a combined support with Labour, of 43% in a hypothetical coalition, less than the Tory-Brexit total.

As for other parties, the Green Party has 5% and Scotland’s SNP has 3%. It should be stressed that the Conservatives have been ruling out forming an alliance or coalition with the Brexit Party, fearing it would cost the votes of the not-so-hardline Brexit supporters, while the Liberal Democrats have also been saying that they couldn’t contemplate a coalition with Labour while Jeremy Corbyn is their leader, who is unpopular and widely blamed for the historical low-polling that his party has been seeing, and who would put off politically homeless pro-EU Tory voters from shifting their way.

With the election likely to boil down to a shootout between pro-Brexit and pro-EU sides, what the Tory and Brexit parties will be fearing most are voting pacts between Labour, Liberal Democrats, Greens, Plaid Cymru (of Wales) and the SNP, whereby they would tactically withdraw candidates from contesting seats on a seat-by-seat basis in a way that would prevent splitting the anti-Tory Party/anti-Brexit Party vote.

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Andria Pichidi

Market Analyst

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