OCM Commentaries

Market Commentary 24th October 2019

By October 24, 2019 No Comments

The Brexit Waiting Game

After a tumultuous week of Brexit news, the weekend passed by without agreement in Parliament on how to progress with Brexit negotiations. As we look ahead for the UK economy, the ball remains once again firmly in the court of the EU-27 as we await their decision on whether to grant a further extension to the 31st October Brexit deadline. After a surge of optimism over a deal last week, it is becoming clear that there is still a long road ahead before we leave the European Union.

Boris Johnson’s Brexit deal passed through the commons on Saturday, representing a significant development towards breaking the Brexit impasse and achieving a deal with which to leave the European Union. While this represented a huge win for Boris Johnson’s government, any celebrations were short-lived, as the government’s Brexit timetable for achieving final sign off of the legislation in the house was criticised for being too short considering the importance of the legislation, subsequently being voted down by MPs.

As a result of the defeat in the Commons, Mr Johnson was forced to request a further Brexit extension, as it became clear that the deal would not receive the backing of lawmakers in Westminster in time for the original exit date of 31st October. The Prime Minister also responded to the defeat of the timetable by dropping the legislation, rather than offering to work with opponents to further his deal in the Commons. It is thought that this is down to his continued commitment to leave the EU by 31st October, as well as the expectation that a series of amendment discussions would follow, with MPs attempting to change fundamental details in the bill (which is not what Boris intended).

It has been reported that EU ambassadors in Brussels agree that they should accept the request for more time, however they can’t settle on how long to give. The French are pushing for a tight deadline of 15th November, while others want to give the UK the three months it has asked for. A decision is expected to be made by Friday. Failure of the EU to offer an extension could potentially force Britain out of the EU without a deal next week (although this is viewed as being highly unlikely), while a shorter extension would limit the options of British lawmakers to move forward on Brexit, which is likely to result in MP’s being forced to back Mr Johnson’s deal against an alternative of no-deal. A longer extension allows time for a General Election which may allow the government to get a larger majority, or pave the way for a change in leadership to push through an alternative Brexit strategy.

As MPs now wait to hear whether the EU will grant a further extension, and what length of extension will be offered, it appears that Mr Johnson is preparing for an election. Opposition leader Jeremy Corbyn has said that he will support an election after a further extension has been agreed with the EU, while the SNP have recently expressed a desire for a General Election centred around the Brexit issue. As of this morning’s announcement by Jacob Rees-Mogg, the withdrawal Bill is not on the agenda for Parliamentary discussion next week. He then confirmed that the government is waiting on Brussels before acting, fuelling expectations that the Prime Minister will call an election if an extension to January is approved.



Our Positioning

Based on recent developments, it remains our view that the EU will grant an extension to January, which will then be followed by calls for an early general election. We do not expect the EU to come back with a shorter extension or no extension which could result in the UK falling out of the EU with no deal, due to the negative impact this would have on the EU economy. This would result in further uncertainty in the near term, which would work to the advantage of our portfolios.

Should no extension or a short extension be offered, further uncertainty would follow as the risks associated with a no-deal Brexit remain on the table, however we would expect the current deal to gain support from MPs to ensure that the UK leaves with a deal. As it stands, we are well positioned to benefit from further Brexit uncertainty, and we await an attractive opportunity as bond yields decline to remove the UK Gilt exposure to reduce Brexit-related volatility going forward.

As mentioned in the Brexit briefing note sent on Thursday last week, rest assured that we are poised to act on any new developments, identifying any opportunities as they arise while reducing risks as required.

Key Events This Week:

  • Friday: US Consumer sentiment data for October

For anyone who wants further data to substantiate the position please review the Global Economic News Document attached, the economic data set and the Market Update also attached.


Model Portfolios & Indices

Most global equity markets remained relatively flat over the week as US-China trade and Brexit optimism abated as the week went on. Markets remained highly volatile over the week as the data continued to indicate a deteriorating economic backdrop while trade and Brexit developments dominated the headlines.

Safe haven assets such as gold remained relatively flat over the week as bonds declined earlier this week on risk on sentiment owing to trade optimism, before gaining as optimism abated. It is clear that geopolitical tensions remain, and the economic data continues to illustrate weakness in the global economy, with risks now firmly tilted towards the downside. The OBI portfolios remain defensively positioned with limited equity exposure and a downward tilt which seeks to benefit when equities decline, and our portfolios remain well positioned given current conditions. The portfolios declined over the week owing to a temporary risk-on shift, however it is key to note that we view this as short-lived euphoria over trade which will be reversed in the coming weeks.

As we progress from here, it is important to recognise that we should not let benchmark performance make us feel like we have missed out on anything, because although we have in the short term, recent performance shows how quickly this can be reversed given current levels of risk and uncertainty.


Overall, it is our view that equity markets will continue to decline before adjusting to the new norm based on lower global growth and weaker corporate profitability. The key point here is to take a long-term view, look at the current level of uncertainty in the global economy, and remember that the portfolio is designed to minimise your exposure to risk and preserve capital. Markets are behaving irrationally, therefore the most sensible strategy is a defensive one given current market conditions.


Important Information


The data above will not directly correlate to the indices as there is always a delay in pricing because the US markets close significantly later than the European markets and the Asian markets. The data set above reflects the last close and much of the days movements will not yet be reflected in the portfolios due to pricing delays. You cannot therefore directly correlate indices to the portfolios. The value of investments may fluctuate in price or value and you may get back less than the amount originally invested.


Past performance is not a guarantee of future performance. Performance figures quoted include the fund manager charges but exclude other fees such as adviser, custodian, switch and/or discretionary investment management fees. Unless otherwise instructed and accrued, income is reinvested into the portfolio.


This Day in History


On this day in 1857, the world’s first football club, Sheffield FC was founded in Yorkshire, England.


Have a great week,


Jason & Gina

Jason Stather-Lodge  CFP, MCSI, APFS

CEO & Founder

Chartered & Certified Financial Planner

Chartered Wealth Manager