GBP: The “Trumpflation” trade - Nomura

Research Team at Nomura, suggests that the Trump does not mean Softer Brexit but does mean position reduction for the GBP.

Key Quotes

“It’s an interesting notion that Donald Trump’s (or “Mr Brexit’s”) election win could lead to a softer outcome for Brexit. The argument goes that it could lead to an improvement of the UK’s negotiating position when dealing with the EU, with the UK now at “the front of the queue” with the US in trade talks. It seems plausible, but we should remember the EU’s first priority is self-preservation. The rise of populism within its own borders is more likely than not to lead to the EU driving a harder bargain with the UK. If the UK were to receive a favourable deal it would serve to validate the arguments put forward by the EU’s Eurosceptic parties.”

“In terms of Mr Trump’s view on NATO, it could see the UK try to use the uncertainty to its advantage in EU negotiations but it’s unlikely to materially change the outcome. For GBP there is a high degree of Hard Brexit priced in (about 60- 70% in our view) and positioning is still short when the trend looks to have stalled for the time being. So while we think next year GBP should find its Hard Brexit equilibrium, for now the “Trumpflation” trade and a self-fulfilling pain trade position reduction flow should dominate, and this should see GBP outperform in the short run.”