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After court battles, a House of Lords dissent and the emerging prospect of a Scottish Referendum, we have finally seen the UK government trigger Article 50, and Brexit. On 29 March, UK PM Theresa May officially notified her European counterparts of the UK’s intention to leave the EU by delivering a letter of intention to European Council President Donald Tusk. This provides one of the most exciting opportunities to trade stock markets since the EU referendum and the US election, but the jury remains split on how the process will ultimately pan out.
So, what comes next? When will Europe respond? Here are some of the key Brexit dates to put in your calendar.
On 31 March the EU President Donald Tusk should provide the Union’s first response to Brexit, while there may also be comments from the EU’s chief negotiator, Michel Barnier. The EU will then undertake a series of special meetings, the first of which will take place on 29 April, to piece together the group’s negotiating hand, while formal negotiations between the UK and the EU are expected to begin sometime in June.
Added into the schedule of events is, of course, the French presidential election, with the first and second rounds of voting taking place on 23 April and 7 May respectively, while the German federal election takes place in September. This throws up the prospect of the UK having to negotiate with new leaders of the two leading economic powers in Europe, who may potentially use Brexit as a platform to flex their political muscles.
With all of this happening in the space of just a few weeks, there could be room for a significant market reaction in either direction. With no set course for negotiations, sometimes financial market movement might not reflect media headlines. Our in-house research is here to help you dissect the news and remove the grey noise. Why not try it out beforehand by signing up here to have it delivered directly to your inbox before we begin Brexit.
While market reaction might not be as sharp and immediate as the referendum aftermath – after all, it won’t come as a surprise – however, the divorce negotiation will likely see markets continually influenced next two years.
Talks will cover a multitude of topics, including (but certainly not limited to) free trade, determining legal jurisdiction, travel and working rights of UK and EU citizens in the others’ respective territory and, of course, access to the European Single Market. With majority approval from 27 states needed, the worst-case scenario leaves the UK without any negotiated deal and forced to adopt WTO trade rules. This leaves Britain to go it alone against the rest of the world as an outsider, not only Europe but also in key areas such as the US and Asia.
This could see UK companies listed on the London Stock Exchange, as well as Pound Sterling, sell-off sharply as a Hard Brexit becomes a reality. So how can you prepare for this potentially difficult scenario?
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The EU could drive a hard bargain, not wanting to make it look like the UK is getting a good deal in order to deter other countries from offering similar referendums on membership. As a result, there may be potential during the next two years for the UK government to be on the receiving end of some serious blows to their proposed plans, perhaps on a weekly or even daily basis. This might cause the stock market to react negatively on occasion.
Subsequently, we could see the UK Index , Pound Sterling and the Euro move significantly in reaction to the flavour of the day, whether that includes agreements being reached or some talks becoming in danger of falling through.
The prospect of an everchanging horizon could be daunting for some, but it needn’t be. By trading with Accendo Markets, you’ll have the ability to take both long and short positions, meaning that you’re able to profit from a stock market moving in either direction. With Brexit being a polarising event, we provide you the tools to benefit.
Do you see Brexit having a negative effect on the UK stock market, the Pound or the Euro? Take out a short position, that allows you to profit when markets move downwards. More details on this popular strategy during a bear market can be found here on our website.
Alternatively, you may believe that Brexit negotiations may provide a period with some stormy clouds, but also some sunny spots during the negotiations. In this scenario, you could hedge your portfolio – by using both long and short positions – in order to profit from market movements in either direction.
For example, if you were hoping to maintain a long position worth £10,000 in Barclays, but thought that the bank’s share price could fall during Brexit proceedings, you could open a short position with Accendo to the tune of £10,000 in order to negate a share price fall over a time period of your choice. For further details on how you can use short positions to hedge against falling prices, watch our educational video on the subject here.
It may be obvious to point out, but the EU also has vested interest in maintaining strong links with the UK. German car manufacturers, for example, provide a significant volume of exports to the UK, while governments in countries with a high number of citizens living in the UK, such as Poland, will hope to guarantee their rights.
Another country with particular interest in an acceptable deal for the UK is Spain. With the country not wanting to prompt further independence calls from its Catalonian territory, it might not want to give Britain a deal that might provoke a second Scottish referendum, not to mention the potential loss of British expats’ trade!
Finally, the UK provides a key access point for many European financial institutions to US and Asian markets. Without wanting to waste millions of dollars and upend hundreds of thousands of people and families, banks may look to keep some operations going in Britain, requiring some form of deal for the all-important sector.
So far, the EU has said that it too is hoping a deal can be reached before the March 2019 deadline for negotiations is reached. But without a crystal ball, it is impossible to say that this will definitely be the case!
Over the page, we analyse six UK 100 stocks - three that reacted negatively and three that reacted positively to the referendum - and provide an index example that could present you with an Article 50 trading opportunity![/vc_column_text][/vc_column][/vc_row]
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Bullish: Day by Day, Buy, Target 615p, +17%, (9 Feb)
Average Target: 522p, -0.9% (24 Mar)
Bearish: Exane BNP Paribas, Underperform, Target 420p, -20% (20 Mar)
N.B. All pricing and consensus data was sourced from Bloomberg on 24 March. Please contact us for a full, up to date rundown.[/vc_column_text][/vc_column][/vc_row]
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Bullish: Jyske Bank, Buy, Target 1350p, +34% (24 Jan)
Average Target: 1001p, -0.4% (24 Mar)
Bearish: MainFirst Bank, Underperform, Target 700p, -30% (7 Mar)
N.B. All pricing and consensus data was sourced from Bloomberg on 24 March. Please contact us for a full, up to date rundown.[/vc_column_text][/vc_column][/vc_row]
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Bullish: HSBC, Buy, Target 211p, +9.0% (22 Mar)
Average Target: 193p, -0.3% (7 Mar)
Bearish: Liberum, Hold, Target 150p, -23% (1 Mar)
N.B. All pricing and consensus data was sourced from Bloomberg on 24 March. Please contact us for a full, up to date rundown.[/vc_column_text][/vc_column][/vc_row]
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Bullish: Barclays, Overweight, Target 625p, +38% (16 Mar)
Average Target: 515p, +14% (24 Mar)
Bearish: Natixis, Neutral, Target 400p, -12% (8 Feb)
N.B. All pricing and consensus data was sourced from Bloomberg on 24 March. Please contact us for a full, up to date rundown.[/vc_column_text][/vc_column][/vc_row]
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Bullish: Credit Suisse, Outperform, Target 1948p, +26% (25 Jan)
Average Target: 1428p, -7.8% (24 Mar)
Bearish: Goldman Sachs, Sell, Target 1050p, -32% (9 Mar)
N.B. All pricing and consensus data was sourced from Bloomberg on 24 March. Please contact us for a full, up to date rundown.[/vc_column_text][/vc_column][/vc_row]
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Bullish: JPMorgan, Overweight, Target 1100p, +8.3% & Morgan Stanley, Overweight, Target 1100p, +8.3% (24 Mar)
Average Target: 1007p, -1.0% (24 Mar)
Bearish: Credit Suisse, Underperform, Target 850p, -16% (24 Jan)
N.B. All pricing and consensus data was sourced from Bloomberg on 24 March. Please contact us for a full, up to date rundown.[/vc_column_text][/vc_column][/vc_row]
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N.B. All pricing was sourced from IT Finance on 27 March. Please contact us for a full, up to date rundown.[/vc_column_text][/vc_column][/vc_row]
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Whether you see UK stocks going up or down for the remainder of the year, tradable opportunities will present themselves regularly. We’re here to help you weed them out and capitalise on them. Accendo Markets can help you increase your profit potential with the use of leveraged instruments such as CFDs, a flexible alternative to traditional shares that is currently exempt from UK stamp duty.
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The example above shows how buying 1,450 shares in British Land @ £6.90 requires an outlay of around £10,000 plus commission (see left-hand box), while the same exposure via a CFD requires about £500 plus commission (see right-hand box). If a trader invests in British Land, one would assume they believe the share price is likely to move in their favour. After considering the ‘worst case scenario’ and assigning funds to cover it, the trader may conclude there’s little point in exposing the full £10,000 to the BLND shares - some of that capital could be put to good use elsewhere in the markets. (Source: IG, Prices indicative)
If you had, say, £10,000 to invest in the stock market, you could deposit that amount into a share dealing account and purchase shares in a company. You would pay commission to open the position, 0.5% in stamp duty and the full £10,000 will be tied up in your chosen shares with any profit or loss based on that exposure. The same £10,000 worth of exposure can be secured with a CFD for a fraction of the initial outlay thanks to leverage, with the risk and reward the same as if £10,000 worth of traditional shares were held. But should you not be interested in leverage, you can always treat CFDs like shares. Simply deposit £10,000 into a CFD trading account and take the equivalent CFD position which will tie up just £500 (note that overnight financing costs will still apply). The remaining £9,500 is not tied up, so you can use some of that to take advantage of another short-term opportunity elsewhere, or simply leave it on the account to support any losses. Best of all, using a CFD means you pay no stamp duty!
Think shares will rise? Take a long position by buying CFDs (buy low, aiming to sell high). Think they’ll fall? Take a short position by selling CFDs (sell high, aiming to buy low). For a more detailed rundown of CFDs, their mechanics, associated costs and some trading scenarios download our ‘Comprehensive Guide to CFDs’ here.
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Does your current broker’s morning report tell you all you need to know about yesterday’s news? If so, how is it offering you anything more than the plethora of information already available on the internet?
We’re proud that our morning editorial has become a hot commodity in the City, its content quoted daily by the journalists that are writing the news everyone else will be reading later in the day, if not the next. Our morning report tells you what’s driving the market at that moment and what to look out for in the day ahead.
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AccendoFX Ltd - 1 Alie Street, London, E1 8DE (UK) - AccendoFX Ltd. is registered with the Financial Conduct Authority (FCA) No. 671133 and HMRC No. 12798406. Registered in England and Wales No. 9269365.[/vc_column_text][/vc_column][/vc_row]
This research is produced by Accendo Markets Limited. Research produced and disseminated by Accendo Markets is classified as non-independent research, and is therefore a marketing communication. This investment research has not been prepared in accordance with legal requirements designed to promote its independence and it is not subject to the prohibition on dealing ahead of the dissemination of investment research. This research does not constitute a personal recommendation or offer to enter into a transaction or an investment, and is produced and distributed for information purposes only.
Accendo Markets considers opinions and information contained within the research to be valid when published, and gives no warranty as to the investments referred to in this material. The income from the investments referred to may go down as well as up, and investors may realise losses on investments. The past performance of a particular investment is not necessarily a guide to its future performance. Prepared by Michael van Dulken, Head of Research