Breaking News
Ad-Free Version. Upgrade your experience. Save up to 40% More details

StockBeat: FTSE's Brexit Blues Likely to Drag on Into Next Year

Stock MarketsDec 11, 2020 05:30AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
© Reuters.

By Geoffrey Smith -- Two factors are supposed to underpin U.K. stocks next year. The first is the post-pandemic economic recovery, to which the commodities-heavy FTSE 100 and the midcap FTSE 250, with its bevy of domestic-focused services companies are both heavily exposed in different ways. The second is the return of international portfolio managers to equal weightings for U.K. equities after years of being underweight due to the lack of clarity about Brexit. 

The first theme is still intact, despite the likelihood of some setbacks along the way. The announcement on Friday by GlaxoSmithKline (NYSE:GSK) and Sanofi (NASDAQ:SNY) that their vaccine hadn't proved effective in stage 2 tests is one example of that. The pair now say they will re-engineer the drug and try again but don't expect it to be available before the fourth quarter of 2021. GSK stock was unmoved by the news, though, not least because it seems that the race to get vaccines to market is already lost. GSK was up 0.7% by mid-morning in the U.K., helped by sterling's weakness and by the comforting knowledge that it doesn't matter whose vaccines return the world to normal if it means that all of GSK's other drugs can be return to pre-pandemic sales levels when the intensive care wards are cleared again. 

But the second theme looks to be in more danger. The unending nightmare of Brexit looks as if it may yet stretch out into the new year, albeit in mutated form. European Commission President Ursula von der Leyen told journalists after a meeting with EU leaders that "No Deal" as of January 1st, when the current post-Brexit transition agreement lapses, is more likely than a deal of any sort. That the EU leaders spent all night haggling (with some success) over their budget and the 750 billion-euro Recovery Fund, and only 10 minutes (according to various newswire reports) talking about Brexit, suggests very strongly that no-one sees a deal on the table worth discussing.

The chance of agreement has been effectively scuppered by the EU inserting, at the last minute, additional requirements that would force the U.K. to follow any future tightening of regulatory standards in the EU if it wanted to maintain full access to the Single Market. This is not a demand that lawmakers in Prime Minister Boris Johnson's Conservative Party will willingly accept. 

U.K. officials are complaining that the demands are unfair, but that is to miss the point. Negotiations are about what you feel you can get away with, not what is fair or unfair. The addition of fresh demands at the last minute comes only three days after the U.K. gave ground by withdrawing the offensive parts of its new Internal Markets Bill to placate the EU. That makes it very clear where the balance of power in the negotiations lies.

That all suggests that the EU is calculating that the impact of No Deal in January will be harder in the U.K. than in the EU. The U.K. will have to levy tariffs on imports from the EU (equivalent to around 13% of U.K. GDP) under World Trade Organization rules, with direct impacts on the cost of living. Given that imports from the U.K. constitute only 4% of EU GDP, the EU's calculus seems well founded. However, it does assume that the EU is willing to compensate Ireland for the particularly heavy impact that it will suffer from the disruption of trade, especially since much of Ireland's exports are perishable and need to avoid delays at the border.

Assuming that the new year starts with disorder and recriminations, the likeliest way forward is that the chaos is only mended slowly and in piecemeal fashion. That is not a scenario under which international portfolio managers are likely to return to U.K. equities, however good the post-pandemic rebound looks.



StockBeat: FTSE's Brexit Blues Likely to Drag on Into Next Year

Related Articles

World stocks at 1-month high as bond yields soften
World stocks at 1-month high as bond yields soften By Reuters - Oct 19, 2021 4

By Saikat Chatterjee LONDON (Reuters) - World stocks climbed to a one-month high on Tuesday as a rally in technology shares and prospects of solid corporate earnings helped...

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (2)
Basat Tayfun
Basat Tayfun Dec 11, 2020 7:04AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
well said.
Jan Skilbrei
Jan Skilbrei Dec 11, 2020 6:55AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
this is intelligently written, thanks ... and folks, ask Sir P M give medicine to poor children, he not grateful for fans money from Yesterday, Let it Be, Hey Jude etc (he «woke up» to these melodies) (Bowie, Sting also, so did, gre ed, pom peous, de vil s)
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
Sign up with Email