What’s that sniggering?
It’s the whole world having a laugh at Britain’s expense as our elected leaders continue to make a total mess of Brexit.
And I’m not surprised they’re laughing.
It’s a joke.
What’s not so funny is that it could end up doing some serious harm to our economy…
And to your investments if you have money in British-focused shares.
What’s going on right now between us and Europe could turn out to be one of the pins that pricks the bubble… and brings stocks crashing down.
Investors give up on the UK
We can already see the effects it’s having on some parts of the economy.
Let’s start with the financial sector.
There’s a dramatic shift playing out there…
Increasingly, foreign capital is shying away from investing in the UK.
Investors would rather put their money in Europe.
According to a new report from Ernst & Young this week, a growing number of overseas investors see Germany and even France as far safer bets.
Bloomberg has the details:
“Investment from abroad in Britain’s financial-services firms fell 26 percent last year, EY said in a report released Monday. During the same period, Germany experienced a 64 percent increase, while the figure for France more than doubled.
And it’s the same story in the car industry…
New research from the Society of Motor Manufacturers and Traders reveals that “investment in the UK motor industry has halved in the first half of 2018, as uncertainty about the future post-Brexit hits spending”.
Investors in UK industry don’t feel comfortable with all the uncertainty about what’s going to happen over the next year.
Who can blame them?
Given the fiasco that is Theresa May’s Brexit strategy, it’s no wonder people are losing confidence.
The way she’s playing it, we’re going to be left isolated and with an appalling set of trade terms with Europe and the rest of the world.
Even some of her own closest colleagues have lost faith. And the chances are, there will be more.
We already know Brexit Secretary David Davis and Foreign Secretary Boris Johnson both quit this week.
And we now have the ridiculous situation where the holders of the top four jobs in government are ‘remainers’…
Even as the country negotiates to leave the EU.
The question is: what happens next?
Is there so much bad feeling in the Tory party that the Prime Minister could soon face a leadership challenge?
A battle for control
It’s got to be a possibility, hasn’t it?
Michael Howard is one of the ex-cabinet Tory heavyweights who usually chimes in in times of party crisis.
And his view is that challenging May would be “extremely foolish and ill-advised”.
Ah, that’s OK then.
Politicians NEVER do foolish or ill-advised things, so that’s it. May is safe…
The Independent reports that “senior ministers rallied around Theresa May amid speculation of a looming vote of no confidence in her leadership”.
But how long will that last?
May’s leadership is by no means safe at this point.
There are too many ambitious players in the wings who might fancy their chances if they see May crippled and weak.
Jacob Rees-Mogg, for example.
OK, so he’s always denied he’s interested in the top job (when asked in public anyway).
But he’s favoured by hard-Brexit Conservatives.
And he’s so vocal about what he believes regarding Europe, I wouldn’t be surprised to see him have a go.
Then there are other members of the Cabinet who wouldn’t think twice about toppling May if they thought they could get the keys to No.10.
Remember, Michael Gove double-crossed Boris Johnson the last time there was a leadership contest in 2016.
With Johnson gone, why not have a go at the PM job? Certainly, the bookies have him as favourite for next Prime Minister.
There’s Home Secretary, Sajid Javid. Another super ambitious Eurosceptic who wouldn’t hesitate to trample on May to get to the top.
The list goes on.
Anyway, let’s not get bogged down in a guessing game here.
We’re interested in markets and money and the madness that goes on there, not so much political power struggles.
Political turmoil breeds market turmoil
The point is, the UK is – as Donald Trump told reporters on Tuesday – “a situation with turmoil”.
With so much at stake, what’s needed is strong government and a clear way forward to negotiate the best terms possible for Brexit.
Instead we have uncertainty and division in the government.
There’s even talk of a general election and the chance of a change in the governing party.
And if there’s one thing financial markets hate, it’s uncertainty.
Market operators like to be able to position themselves to profit (or avoid loss of capital) from the political and economic climate.
So, if it’s not clear what’s likely to happen, they find it difficult to prepare.
And that can lead to distortions and volatility in the market.
That’s why we’ve seen a bit of a wobble in the FTSE this week, down some 200 points or 2.7%, as markets try to figure things out.
Prepare for chaos
But that’s nothing compared to the turmoil we could see in the FTSE and the pound sterling if there’s a proper leadership challenge or a call for a general election.
Suddenly there will be panic as traders try to price in different outcomes.
Whilst uncertainty remains, we could see wild swings and chaos in the markets.
And don’t forget, the whole world is watching this.
Donald Trump’s trade wars might have been getting most of the attention over the past six months or so.
That’s kind of relegated Brexit to the backburner a little in terms of
market-sensitive news.
But make no mistake, Brexit is something that can and will move the markets one way or the other, depending on how it’s handled.
Just think back a couple of years.
On 24 June 2016, when it became clear that the UK had voted to leave the EU, $2.08 trillion was wiped of the value of global shares.
And the news rocked the currency markets, too. The pound fell
7% against the euro and 10% against the dollar.
As the Guardian reported at the time: “The pound’s fall, which stunned investors, was its biggest ever one-day fall, and ranked with the reaction to the collapse of Lehman Brothers in 2008 and Britain’s exit.
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