Brexit Naysayers May Have to Swallow Their Words

Alan Penny

24 January 2020

3 min read

UK flag

  • Flash Manufacturing PMI and Flash Services PMI released
  • Figures show overall confidence in the future
  • Negative fallout from Brexit much milder than expected

Early on Friday, the UK released purchasing managers figures for the month, giving us a look at what the outlook for its economy may be.

The fact that it is better than anticipated suggests that the British business world is starting to come to terms with the Brexit situation, something that the rest of the world will follow right along with, given enough time.

The results of the announcements

The announcements that came out included the Flash Manufacturing PMI and the Flash Services PMI figures for the month. These are an initial look at how purchasing managers feel about the economy and whether or not they are going to put forth capital expenditures.

The Flash Manufacturing PMI reading was 49.8, which was better than the 48.8 figure anticipated. Furthermore, the previous month was revised upward from 47.4 to a reading of 47.5 for the month of December. Also, the Flash Services PMI figure came out at 52.9 above the 51.1 reading that was anticipated. The previous month was revised to 50 from the initial reading of 49.

the overreaction of the naysayers has a lot to do with emotion and less to do with fundamental analysis

This shows that, perhaps, purchasing managers in the United Kingdom are much more confident about the direction of the economy than most of the trading world. This is typical, though, because the markets are full of news outlets looking for people to click websites or watch shows. This suggests that the overreaction of the naysayers has a lot to do with emotion and less to do with fundamental analysis. That’s why there is so-called “smart money” that gets into a position much quicker than a lot of retail traders.

The results suggest that money will eventually flow into British equities and the British pound. The currency markets have already seen the British pound rally, but that has more to do with some type of certainty with Brexit than anything else. With this, the longer-term traders are starting to look at Great Britain through the lens of it being a value proposition, and that can help.

The United Kingdom going forward

The reports of the UK’s demise have been premature, to say the least, and we are starting to see economic figures that back up the idea of the UK recovering. If that’s going to be the case, the market is still looking at the early part of the recovery.

This recovery will continue to have money flow into the UK overall. The bond markets will probably give up some of the gains, while stock markets and currency markets show positivity.

That being said, there are also concerns about Brexit headlines as the UK and the EU negotiate the divorce. It behoves both of them to cooperate in good faith now, as the divorce is certainly going to happen.

The bluster will continue, but probably with much fewer reactionary forces in the markets as the ending is now a known scenario. Now, the markets are simply waiting for the details.

Written By
Alan Penny

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