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Where Do U.K. Markets Go From Here? Views From the City

Where Do U.K. Markets Go From Here? Views From the City

(Bloomberg) -- U.K. equities saw marginal outperformance in early trading on Tuesday as a weaker pound lifted exporters following another fruitless night of voting in Parliament.

Theresa May’s cabinet are expected to be at loggerheads for much of the day before lawmakers once again indicate their preferences for breaking the deadlock in the House of Commons on Wednesday.

The consensus among analysts is that a longer extension to the divorce process will be required, while a general election is potentially in sight, and a second public vote hasn’t been discounted.

Where Do U.K. Markets Go From Here? Views From the City

Here’s a summary of what the Street is saying:

UBS, John Wraith, Daniel Trum

  • A general election “may now be inevitable,” and that option is possibly more appealing to the current government than some assume, with the Conservatives leading the polls, and speculation that the left-wing vote could be split after MPs recently left the two main parties.
  • There could also be vote “lending” as people switch party preferences in line with their view on Brexit. This could lead to a net gain of 21 seats for the Conservatives.
  • Long extension to Article 50 now likely. Does not advocate taking directional views on sterling, as currency likely to remain volatile.

Goldman Sachs, Adrian Paul

  • A permanent customs union wrapped in a confirmatory second referendum versus “remain” could now command a cross-party majority, with the force of a Labour whip.
  • Still sees 45 percent chance that a modified version of the current withdrawal agreement is eventually approved by Parliament; 40 percent chance of no Brexit at all; 15 percent chance of no-deal Brexit.
  • A successful Labour-led motion of no-confidence in the government can’t be discounted, if the prime minister refuses to back a customs union plan that gets Parliament support, meaning the prospect of a general election has increased.

Citigroup, Christian Schulz

  • Northern Ireland’s Democratic Unionist Party and euro-skeptic conservatives are likely to ensure defeat of May’s deal again, and it’s also possible the speaker blocks yet another “meaningful vote” on her plan.
  • Snap election seems logical, but is not certain to lead to a solution. In the event of a Conservative leadership contest, campaigns would likely run on a tough-EU stance, which could lose support in the center, meaning control of Parliament unlikely.
  • While the scheduled round of voting on Wednesday seems “futile,” circumstances could change quickly again.

Mediolanum Asset Management, David Holohan

  • Expects sterling to weaken from here as the likelihood of an election increases, even though that option is not guaranteed to break the impasse.

Donner & Reuschel, Martin Utschneider

  • Equity markets need to be prepared for all eventualities, and although now out of overbought territory, stops and profit-taking measures should remain in place.

--With assistance from Ksenia Galouchko, Lisa Pham, Jan-Patrick Barnert and Justina Lee.

To contact the reporter on this story: Joe Easton in London at jeaston7@bloomberg.net

To contact the editors responsible for this story: Beth Mellor at bmellor@bloomberg.net, Jon Menon, Monica Houston-Waesch

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