Financial Markets on Tenterhooks as May Fails to Spell out Brexit Strategy

Anyoption analyst Brett Chatz takes a look at the new strategies which incoming British Prime Minister Theresa May might employ. For more of Brett’s research see the Anyoption blog.


Principled Leadership or Populist Conformer?…..

Theresa May is the new face of British leadership. A conservative through and through, but not an advocate of breaking from the European Union. Indeed, under Theresa May’s guidance, she pushed for Britons to vote in favour of the remain campaign, spelling out the dangers of a Brexit. Now that she finds herself as the head honcho at number 10 Downing Street, and leader of the United Kingdom, she is holding the poisoned chalice.

May is in an unenviable position, since she was none too pleased with the outcome of the historic Brexit referendum, but now she’s tasked with following through on her words Brexit means Brexit. Among her many policy objectives, the reforms she has put forth to the British public are largely investment based and savings based, but nothing in her agenda makes clear how she will approach the elephant in the room – the Brexit saga.

On Monday, 11 July 2016, Theresa May made a speech in which she declared a full listing of reforms and policy targets that she hopes to achieve under her leadership. She was especially focused on the Treasury and how the UK must improve its productivity to remain competitive in the global economy. In terms of energy reforms, she is intent on seeing Britons paying a lower price for energy bills.

She is of the opinion that R&D policy must work to enable companies to make sound investment decisions that will benefit the greater British economy. This overarching agenda is particularly important given the weakness in the UK economy. The pound recently crashed to a 31-year low against the greenback when it was trading at $1.28. It has since regained momentum and is on an upward trend now that Britain has elected new leadership and normalcy is returning to global financial markets.

Wall Street Stumbles as Uncertainty Returns to Markets


Recall that Wall Street had turned its fortunes around, but it experienced a hiccup on Wednesday, 13 July by the mid-morning session as all major indices were down. It appears that the uncertainty in the geopolitical arena will continue to have an effect on the markets, particularly with the implications of a Brexit on global affairs. While Theresa May has been focusing on investment in infrastructure, and the betterment of cities across the United Kingdom, substance on other issues is lacking. In terms of corporate policy, she wants to enact policies that will make it compulsory for shareholders to vote on what executives are earning. Further, she plans on protecting British companies from foreign takeovers.

But if we examine the policy objectives of Prime Minister May, there appears to be little in the way of a workable Brexit strategy. There is nothing clear about how she plans to tackle the hard questions. This results in severe short-term instability, which translates into volatility on financial markets. By the close of day on Wednesday, 13 July, the FTSE 100 index was not exactly rallying around the new leadership with gains of just 0.18% or 12.10 points to 6,692.79. Across Europe, reaction was muted with the Euro Stoxx 50 PR shedding 0.02% to close at 2,932.90, the German DAX shedding 0.14% to close at 9,950.47 and the French CAC 40 index gaining 0.29% to close at 4,343.92.

The Brexit Anathema


At this juncture, it is unclear what type of trading relationship Theresa May favours with the European Union. The most contentious issue that has yet to be addressed with any clarity whatsoever is her position on Article 50 of the Lisbon Treaty. Will Theresa May invoke Article 50? This is absolutely vital for Britain to initiate divorce proceedings from the EU. Then there is the issue of public perception versus reality. The risks inherent in a Brexit have never been spelled-out with any degree of accuracy to the British populace.

A Brexit from Theresa May’s Schema

Will Theresa May call for in-depth analysis into how the British populace will be negatively affected by a Brexit? Will she delay the issue long enough to force a second referendum? Or will the issue simply be put on the backburner and accepted as an advisory outcome and not a binding one? It appears as if May will make good on her slogan – Brexit means Brexit – but when and how this anathema is enacted is anyone’s guess. There are other peripheral issues that factor directly into the Brexit equation, including the movement of people between the UK and the EU, and vice versa. Tighter borders will impact productivity and job creation, and large parts of the UK favour such measures.

If Theresa May pushes for a tax-based policy which affects migrants, she may be able to convince voters on both sides to go with her ideas. It is clear that substance is needed when it comes to addressing the hard issues. Britons need to know precisely what her policy means in real terms. Will Theresa May deliver the goods and satiate the public’s desire for more information on precisely what a Brexit looks like from her schema? Truthfully, she may or she may not.

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