UK: Political risk pricing by the market? – TDS

Analysts at TD Securities point out that in the UK, debate begins this week in the UK Parliament ahead of the Brexit bill vote, which is almost universally expected to fail next week.

Key Quotes

“We look to betting markets to discern how markets are pricing the numerous scenarios that may follow.”

“Some potential outcomes include renegotiations, a change in Tory leadership, new elections or a new referendum.”

“We have lowered our estimate for sterling's upside potential once Brexit is resolved. This now looks closer to 4-5%, with a further 3-4% gain possible should the market price in our expectations for BoE tightening next year.”

“We also find evidence that since the summer, the market has begun to price in the risk of a Labour victory in new elections as a slight negative for risk, after having priced a regime change as a clear positive for much of the last two years.”