Brexit Bulletin: Has Boris Johnson Lost the Markets?

Brexit is 55 Days away.

(Bloomberg) --

Today in Brexit: Boris Johnson continues to call for an election, but investors may have switched sides.

What’s Happening? With Boris Johnson calling for an election yet again in a speech in Yorkshire Thursday afternoon, pound traders may now be hoping he loses.

In the latest sign that we’ve entered a parliamentary “twilight zone,” the pound has recovered this week as Johnson’s Brexit strategy appeared to fall apart. Now some banks say that if an election is called, a Labour-led coalition government may be preferable to a Conservative win.

This is surprising because of the truism that markets always vote Conservative, and the current Labour leader, Jeremy Corbyn, is even less popular with investors than most. Yet the Conservatives could now be seen as bad for sterling, because an election win would probably give them a mandate to pursue a no-deal Brexit. If they team up with Nigel Farage’s Brexit Party the currency could fall sharply and settle around $1.15, according to UBS Wealth Management’s chief investment office. 

Why would markets prefer Labour? The party is seen as more likely to pursue a second referendum or a soft Brexit, and unlikely to secure a majority, meaning its coalition partners would temper the policies markets most fear. The pound has had a wild ride over the past week, and it could get even wilder if an election is called.

Look out for a rally if the Conservatives go down in the polls. 

Today’s Must-Reads

• The latest opposition plan to outmaneuver Johnson is to agree to hold an election in late October, my Bloomberg colleagues Kitty Donaldson and Jessica Shankleman report.
• After the prime minister’s brother resigned in protest over his plans, the Guardian tells how Brexit fractured the Johnson clan. 
• Johnson will fight an election a  leader of the party of English nationalism, writes Philip Stephens in the FT, after abandoning the broad church conservatism of the past and jettisoning Scotland.

Brexit in Brief

Standing Firm | Ireland wants a Brexit deal, but not at any price, Irish Prime Minister Leo Varadkar said on Thursday. He reiterated that he wouldn’t accept the removal or time-limiting of the key sticking point, the so-called Irish border backstop, and said there may be some checks on goods and animals near the border in a no-deal scenario. Deputy Prime Minister Simon Coveney is holding cross-party meetings  in London today.

Voting With Their Feet | Investors took £1.2 billion ($1.5 billion) from U.K. equity funds in July, according to figures published Thursday by the Investment Association. The withdrawals accelerated after outflows of £744 million in June.

Bye Bye Bankers | London’s financial services sector has shrunk by almost 12% over the past two years, according to quarterly regional GDP estimates published for the first time. No industry has done worse amid Brexit uncertainty. 

Fly Me Away | U.K. citizens haven’t let Brexit uncertainty ruin their summer, according to the head of EasyJet Plc. “I think it’s better to have certainty, but the longer the uncertainty goes on, people get used to it,’’ he said Thursday in a Bloomberg TV interview. “They won’t stop flying or doing business.”

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To contact the editor responsible for this story: Anne Pollak at apollak@bloomberg.net, Adam Blenford

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