Wednesday preview: Triggering Article 50 is only the beginning

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Wednesday preview: Triggering Article 50 is only the beginning

Tue, 28 March 2017
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Wednesday preview: Triggering Article 50 is only the beginning

(ShareCast News) - On Wednesday, Theresa May will fire the trigger on the two-year negotiating process to separate Britain from the European Union by triggering of Article 50 of the Lisbon treaty - though the bloc's response and hence the major market response is not likely until Friday.
May's newly appointed EU ambassador Sir Tim Barrow will turn courier and personally deliver a letter formally notifying of Britain's exit and kicking off the two-year process (http://www.lisbon-treaty.org/wcm/the-lisbon-treaty/treaty-on-european-union-and-comments/title-6-final-provisions/137-article-50.html) to European Council President Donald Tusk, with the Prime Minister then giving a speech to parliament.

Tusk has promised to contact all the remaining 27 EU member states and provide a response to May within 48 hours, outlining a 'draft Brexit framework' agreeing terms of negotiation.

But formal guidelines, including priorities, principles that cannot be compromised and the structure of the talks, will not be agreed until a 29 April summit where leaders of the remaining 27 members will meet to finalise a common position, which will be handed over to the EU's chief Brexit negotiator, Michel Barnier and his snazzily titled Task Force 50 department.

France's presidential election on 7 May is likely to add to the delay in the bloc deciding on its negotiating directives.

So if all goes smoothly, negotiations should begin in mid-May and need to be complete by 29 March 2019 - unless both sides agree on an extension.

The month of May will also see the Queen's Speech outline the Great Repeal that will incorporate those thousands of EU laws into the statute book "wherever practical", so that the government can begin amending or repealing laws it does not like before the exit process is complete. During the two-year negotiation period, EU laws would still apply to the UK but the Government will also need to pass a dozen or more pieces of complex primary legislation to prevent commercial and legal chaos in two year's time.

While the movement of sterling has been closely linked to Brexit news since the referendum last June, analyst Michael Hewson at CMC Markets did not think Wednesday will be catalyst for a further leg lower in current bearish sentiment towards the pound, particularly since short positions against sterling remain at record levels.

As the date is no longer a surprise, markets have had ample time to prepare and with economic data still fairly buoyant and largely already priced in, if anything he suggested the act of triggering the divorce proceedings "could be one of those 'sell the rumour, buy the fact' type of trades that has the potential to drive the pound up towards its recent highs and towards the $1.30 area where it was prior to the recent Bank of England rate cut in August".

David Lamb, head of dealing at Fexco, comments agreed that with May preparing to pull the Brexit trigger, the markets are braced not for the shot but the recoil as, for all its historical significance, the Article 50 letter to Brussels is a mere formality.

"But the EU's response later this week could give a much clearer indication of where the battle lines will lie," he said.

In company news, TUI, Saga and Stagecoach Holdings.

The market will be interested to see how summer bookings are shaping up in this update from FTSE 100-listed travel group TUI.

In February Anglo-German tour operator reported a solid start to the year with a healthy level of advance bookings for the summer and guided towards a 10% increase in annual earnings this year.

For Saga, after the company's transformation to a capital-light, higher growth model, UBS said it expected the following things to be in focus in the results: indication of medium-term growth potential, market share and margin growth from the motor insurance panel, the sustainability of reserve releases.

Group trading profits are expected to be flat at £99m, with total pre-tax profit growth for the year of 5%, at the bottom end of the 5-7% guidance.

Stagecoach will deliver a trading update, having in December's interim results maintained its full year expectations.

For the stock to advance, UBS said there would need to see some signs that growth is returning to the divisions which have struggled so far this fiscal year, most importantly UK Regional Bus.

Wednesday 29 March

Consumer Credit (08:30)
Mortgage Approvals (08:30)
M4 Money Supply (09:30)

Crude Oil Inventories (US) (14:30)
MBA Mortgage Applications (US) (11:00)
Pending Homes Sales (US) (14:00)

Alliance Pharma, Atlas Mara Limited (DI), Avengardco Investments Public Ltd GDR, BBGI SICAV S.A. (DI), Biome Technologies, Cambridge Cognition Holdings, Centaur Media, Faron Pharmaceuticals Oy (DI), India Capital Growth Fund Ltd., Jackpotjoy, Johnston Press, PJSC Centre For Cargo Container Traffic Transcontainer GDR (Reg S), Saga , Sanne Group

Allergy Therapeutics, Game Digital, James Halstead, Transense Technologies

Stagecoach Group, TUI AG (DI)

Polymetal International


Fair Oaks Income Fund Limited

Adept4, Amino Technologies, Angus Energy , MCB Bank Ltd GDR (Reg S), St. Modwen Properties

Blackrock Throgmorton Trust, CC Japan Income & Growth Trust

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