In view of analysts at Nordea Markets, it is still very hard to see any sort of breakthrough appearing in the Brexit talks soon, yet still markets seem to position for a probability weighted much more benign Brexit outcome than just months (or even weeks) ago.
Key Quotes
“We like to track the Brexit-sentiment either via story-counting or implied betting market probabilities. On both gauges Brexit/GBP optimism has not been larger since the referendum in 2016.”
“Betting markets now put a 4 to 1 probability on a second referendum compared to a no-deal (with no-deal probabilities standing at 10% and 2nd referendum at 40%). Admittedly, we also judge that odds have moved in that direction recently, but isn’t the market completely overlooking the risk that a second referendum could also potentially pave the way for a no-deal in case that is what the Average Joe in the UK wants? After all, we are still far from convinced that the voter sentiment has changed markedly since the 2016 referendum.”
“Also, the #fakenews that aired on Monday indicating Jeremy Corbyn’s support of a second referendum shows how eager the market is to interpret any news flow positively currently. The fact is that Corbyn just keeps all options open and hence support the idea that the Commons should be allowed to vote on almost any thinkable amendment. That is not the same as supporting the idea of a second referendum.”
“When we summon our inner contrarians, this tells us it is time to short the GBP again. Markets are now too complacent on no-deal risks again. We enter long EUR/GBP with an initial target of 0.8850.”
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