Softer talk from Hammond, so far, is tonic for the UK markets
|Softer talk from Hammond is tonic for the UK markets
UK Chancellor Philip Hammond’s testimony to the Treasury Committee has, so far, helped to support the pound and UK stocks this afternoon, although they haven’t ignited a major wave of buying of UK assets either. The markets seem comfortable, rather than ecstatic, about his comments including confirmation that the BOE will remain independent, and that no conclusion has yet been reached on the exact Brexit deal that will be sought by the UK government. He admitted that there are different opinions in the cabinet over how to approach Brexit, however Hammond and May are reportedly close, so his view could suggest that May’s own view is less severe than she put across at her Party conference.
Hammond’s comments supports the GBP recovery
Although the pound has fallen back from its intra-daily highs vs. the USD at 1.2332, Hammond’s comments seem to support GBPUSD around the 1.23 level. We believe that, on balance, his comments that nothing is set in stone regarding Brexit, is more market-friendly than the “hard” Brexit rhetoric that has come from Number 10 in recent weeks.
Although Hammond is not giving anything away at this stage of his testimony, it gives the markets a glimmer of hope that the UK may not target a “hard” brexit. His opening comments did mention that the current government will bring down net migration to the UK, however, he hasn’t linked this to throwing out access to the EU single market or customs union. This is significant, as it is a softer approach from what the market had perceived from PM Theresa May’s comments at the Tory Party conference at the start of this month.
Hammond concerned with economic impact of Brexit
Hammond said the government will not pursue the policies outlined by former Chancellor George Osborne in April, which included a further cut to corporation tax, however this was to be expected. Regarding the economic impact from Brexit, the Chancellor said that he would examine the fiscal and economic impact of all Brexit options. From a “Remainer’s” perspective, this seems like a more sensible approach to leaving the European Union, compared to some of the extreme approaches that appeared to disregard the economic impact in favour of reducing immigration.
Although Hammond is giving nothing away, his comments may sooth some economic concerns regarding the Brexit process. Overall, his comments so far seem to be supportive of the current recovery in the pound and FTSE 100. But whether or not these gains can be sustained, could depend on this evening’s final US Presidential debate. A win for Clinton could sew up the race for her, which could be a short-term positive for the buck, but may limit further GBP gains.
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