Richard Buxton, Fund Manager, Merian UK Alpha
Had it taken place 10 days ago, the confidence vote – and May’s victory – might have boosted the Prime Minister’s authority sufficiently to enable her to get the aborted deal vote through. She might even have obviated the need to announce that she does not intend to steer the Tory party into the next General Election – assuming, of course, that it occurs after March 2019.
Now however, she is so ‘on the ropes’ that I cannot really see winning the confidence vote at this juncture helping very much; in 24 hours, in all probability, this will be little more than old news, and will do little, if anything, to change the EU’s negotiation tactics.
May’s reaffirmation as leader for at least 12 months reduces the likelihood of her considering alternatives to the proposed deal, such as the so-called ‘Norway-plus’ approach, which would see the UK remain within the European Free-Trade Area.
From the perspective of the financial markets, this would be preferable to the deal presently on offer, but it would be deeply unpalatable to the hard-line Brexiteers who caused the vote of confidence to be triggered in the first place. Ergo, we need to be careful what we wish for at this stage.
As a UK equity investor, my view is that we have now entered the bargain basement buying zone for domestically focused stocks. With some shares down up to 40% from their 12-month peaks, there are some extraordinary opportunities to be seized; it is now, more than anything, a question of timing when to press the ‘buy’ button.
Chris Beauchamp, Chief Market Analyst, IG
The Prime Minister has survived the vote of no confidence in her leadership, though this in reality changes little. The vote, 200-117, was not a thumping result for May, and while it means she remains in place, it is clear that her authority has suffered a blow, especially given that it required a promise that she would not stay for the next election. The pound had already rallied in expectation of the result, so the drop back from the highs is not surprising. But now the focus for sterling goes back to Brexit, and there the outlook is not at all promising.
Now that the vote is out of the way, we can go back to where we were 24 hours ago, and this is no comfort for investors. There is a deal ready to go, but it is still not going to pass Parliament. Thus, while the PM cannot be challenged for another year by her own party, she will not be able to get the deal through unless the EU grants some concessions.
In previous incidences of popular discontent with the EU project, the bloc has provided some concessions, so we may see this again, but it is still far from clear that Parliament’s various tribes will back any changes. The UK’s future, with the clock ticking down, is still very uncertain.
David Zahn, Head of European Fixed Income, Franklin Templeton
May has clung on to power in the United Kingdom, having won a leadership challenge within her own party. But her position is precarious. And, we think the developments of the last two days have increased the chances of a Hard or no-deal Brexit.
Financial markets are likely to react to that development. We’d expect Gilts likely to rally, yields to decline and the pound to continue to weaken.
The relatively small margin of May’s victory in the leadership challenge has significantly dented her mandate to negotiate the Brexit deal terms with Brussels.
Meanwhile, opposition parties in the House of Commons have threatened to table a vote of no confidence in her government. The narrowness of her leadership victory suggests she might struggle to win a confidence vote in parliament and that could lead to a general election early in the New Year.
In our view, May’s departure would likely have extremely negative consequences for markets. Amid this uncertainty, markets will likely be quite skittish for some time, as investors wait for a potential challenge to May’s government and the possibility of a fresh general election and any last-ditch attempt at securing a deal.
John Taylor, Fixed Income Portfolio Manager, AllianceBernstein
May winning the vote of no confidence by this margin has taken a leadership challenge off the table. As such, we can return focus to the Brexit negotiations which remain extremely complex. On the plus side, there appears to be a growing willingness on both sides of the table to avoid the UK crashing out of the EU with no deal.
Bond markets are likely to respond favourably to further signs that a no-deal Brexit being avoided, with even an extension of Article 50 likely to be met with a relief rally, while Sterling looks to have stabilised in the short term. Going into 2019 it has become abundantly clear – bond investors need to be remain vigilant and flexible for many months ahead.
