The UK Brexit mess continues as Boris Johnson’s new government intensifies the Brexit rhetoric. The GBP is breaking to new modern time lows and GBP risk premium, volatility, is spiking violently higher.
It is almost impossible to outline levels in the GBP, but the FX is breaking well below the huge 1.24 level. The daily chart is entering “uncharted” territory.
We have no huge take on this situation, but the October deadline is approaching. The “weird” fall in volatilities earlier this spring has been reversed, and we expect vols to stay elevated.
The longer-term chart of the once mighty GBP has a clear down trend. In 2007/08 the GBP traded at 2.1 versus the USD. It is almost “sad” to see sterling trade here at 1.225.
Note there are some “must hold” levels slightly lower that held as support levels back in 2017.
Having much view on the GBP direction and the Brexit mess is almost impossible.
One thing is sure, there are many sectors and companies that will be losers from this mess.
We have outlined the possible troubled sectors earlier, but here is a reminder.
Companies with large UK domestic exposure will potentially be negatively impacted with major hits to earnings and subsequently falling share prices.
Main sectors to watch out for are: Travel and Leisure, Banks / Financial Institutions, Property Investment / Real-Estate / Construction Companies and Retail.
There are many companies to watch out for, below are a few:
Brits travelling with this weak GBP; EasyJet, IAG, Thomas Cook.
Investment banking tied to EU; Lloyds Banking, Barclays, Royal Bank of Scotland.
The property sector is not a winner on Brexit; Persimmon, Taylor Wimpey, British Land, Land Securities, Travis Perkins.
Retailers import “stuff” they sell, with the weaker GBP look out for; Next PLC, Dixons Carphone, Marks & Spencer.
On the positive side, cheap vacations and properties coming up for people holding “hard” currencies.