Date: 21 Mar 2019

The FTSE 100 is treading water on Thursday, as investors await European Council President Donald Tusk’s response to British PM Theresa May’s letter asking for a short Brexit extension. Prime Minister Theresa May is reported to have asked the EU Council President for a three-month extension to Article 50.

The European Union’s official response to PM May’s request for an Article 50 extension is currently unknown and may include a number of conditions attached, which may not be favourable to Brexiteers. The response from the EU may also take some time, as it requires the approval of all twenty-seven member states.

The text of the British PM’s letter has yet to be revealed, although EU leaders have clearly stated that PM May has to set out the reasons why the United Kingdom needs to extend the Article 50 agreement. PM Theresa May had also stated that she had planned to ask for a longer Brexit extension if she had been able to hold a third vote on her ‘meaningful’ Brexit plan in UK parliament this week.

The FTSE 100 and sterling are likely to come under heavy selling pressure if EU leaders reject the United Kingdom’s request for an Article 50 extension, as it would lead to unprecedented levels of uncertainty and the reality that the UK is increasingly likely to crash out of the European Union without a deal on March 29th unless Conservative party rebels support Theresa May’s unpopular ‘meaningful’ Brexit plan.

Yesterday, housing data from the United Kingdom showed that Brexit uncertainty is causing UK house prices to fall, with London house price suffering the largest annual decline since September 2019, while UK house prices were 1.7% higher in January than a year ago, their slowest inflation rate since June 2013.

 

UK100 Daily Mountain Chart | Source: ActivTrader

UK100 Daily Mountain Chart | Source: ActivTrader 

 

The FTSE has been enjoying an inverse relationship with sterling through much of Brexit, i.e, if sterling falls then the FTSE rises and vice versa. The FTSE 100 is well-supported above its 200-day moving average, the inverse correlation between sterling and the FTSE100 is likely to broken if a no-deal Brexit does occur, with a strong downward move happening in the both British Pound and UK stocks.

 

Written by Nathan Batchelor, External Analyst

 

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