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Alex Kimani

Alex Kimani

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Alex Kimani is a veteran finance writer, investor, engineer and researcher for Divergente Research LLC and Safehaven.com. 

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UK Stocks Bounce Back From Worst Selloff In Years

LSE

U.K .stocks rebounded on Thursday trading, with the FTSE 100 Index rallying 1.6 percent from one of its worst selloffs in recent memory after prime minister Theresa May delivered a white paper outlining Britain’s plans to exit the EU, or “the Brexit people voted for”.

The selloff had come after Trump brought another $200 billion in Chinese imports under a 25 percent tariff barely a week after Washington had imposed tariffs on $34 billion in goods coming from the country.

(Click to enlarge)

Meanwhile, the GBP/USD pair rallied nearly four percent on Friday trading from its Thursday lows:

(Click to enlarge)

Source: Investing.com

Other European stock markets also took part in the rally after Bloomberg reported last Wednesday that officials from both countries have expressed willingness to resume high-level talks, which could yet avert a serious crisis that threatens to rock the global economy.

Brexiteers Disagree with Government

The long-awaited 120-page white paper is aimed at ensuring global trade deals and cooperation for the UK. Although it will take some time for leaders to study the full details espoused in the paper, the initial reaction by government insiders and those in support of a complete severing of ties with the EU (aka the Brexiteers) differed significantly.

New Brexit Secretary Dominic Raab appeared to support the white paper, saying it was a "principled, pragmatic and ambitious future partnership between the UK and the EU".

The Brexiteers though had other ideas. Iain Duncan Smith, former Conservative leader, told ministers he had "deep misgivings" about the White Paper and added that "I voted to leave not to half leave." Related: $1,000 Investment Bible Leaked For $10

Leading Tory rebel Jacob Rees-Mogg echoed Smith’s sentiments saying "There are very few signs of the prime minister's famous red lines,’’ and that "It is a pale imitation of the paper prepared by David Davis, a bad deal for Britain. It is not something I would vote for, nor is it what the British people voted for."

Trump Opposes Soft Brexit

With less than nine months left before Britain cuts ties with the European Union, the UK government appears to be aiming for a “Soft Brexit”, i.e. keeping the ability to freely trade with the other 27 members of the EU so as to minimize the damage to business and the economy that a complete severing of ties would bring.

Though Theresa May has been loath to use the term “Soft Brexit”, her moves are signaling that the UK prefers a soft landing wherein Britain forges a very close relationship with the EU and foregoes the idea of completely regaining control over many of the rules that govern regional commerce.

But it’s not just some part of the government’s inner circles that is opposed to May’s vision. President Trump is dead set against it, saying that a Soft Brexit would kill chances of the UK striking a new trade deal with the U.S.

The U.S. president even went as far as openly humiliating May by suggesting that former foreign secretary Boris Johnson, who resigned in protest over May’s Soft Brexit vision, would make a better prime minister than May. Despite furious protests by the British, Trump has traveled to the UK under May’s invite where the pair is expected to try and strike an agreement over the thorny issue.

What the Strategists Are Saying

Viraj Patel, FX strategist at ING, has said that the GBP/USD pair might climb further to the 1.33-1.34 level in the coming days if it turns out that indeed May’s white paper is strongly in favor of  a Soft Brexit. The forex pair is currently flashing strong buying momentum:

(Click to enlarge)

Source: Investing.com

The FTSE 100 is likely to follow suit barring a further deterioration between U.S.-China trade talks.

By Alex Kimani for Safehaven.com

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