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Article 50: Market and currency movement implications

Etienne de Merlis, CIO, Signia Wealth discusses market and currency movements: 

“Since 23rd June 2016 the FTSE 100 is up 19%, while the pound is down 16% against the USD. While today’s event is likely to be a milestone in British history, it is the first step to a very long process which is unlikely to reverse the last nine month’s performance. In the short term, the FTSE 100 will follow the gyrations of world equity markets and will react to US news and the approaching elections in Europe. The Sterling may be more volatile –  having appreciated over the past 4 weeks, it may be subjected to some profit taking. Should the tone of the Article 50 letter sent to EU authorities be conciliatory, markets will see this as a positive sign giving a boost to UK assets (currency and equities).

“Over the longer term, financial markets will react to headlines over the health of the UK economy, which seems unaffected to date by Brexit except for inflation, how trade negotiations might affect economic growth (and the potential “exit bill”), how much sterling weakness will impact inflation and interest rates and ultimately consumption, and lastly, whether the political integrity of the UK will be maintained with the looming Scottish referendum and talks of Irish unification. This volatility will bring opportunities and in the long run, the most obvious is the GBP undervaluation.”