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UK: How to trade “deal or no deal” - Nomura

In view of analysts at Nomura, it will be very difficult for the UK to resolve the border issue in a matter of days because of the political posturing likely to be involved, but they think there is enough political will so it is likely (70% probability).

Key Quotes

“We did not expect a full and comprehensive answer to the border issue at this stage, so we are surprised by how much progress has been made in the draft agreement so far. However, we and the market underestimated how far the DUP would go with its demands and there now exists the risk of further delays.” 

“When it comes to the “political compromise” needed to move things along a wording in the agreement of “strong commitment to avoiding a hard border” was the compromise that we expected before and still do now.”

“For our long GBP and our rates trades to perform into year-end progress does not necessarily need to be made, but will help. However, we need to be flexible and recognise if negotiations fall through, the market may attempt to price for tail risks of a Conservative leadership contest and/or another UK general election and with it a lower pound.”

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