Will a Brexit deal unleash the FTSE 100

Will a Brexit deal unleash the FTSE 100?

How has the FTSE 100 performed in 2020?

It has been a turbulent year for global markets thanks to the coronavirus pandemic and, whilst we are some way from getting back to normal, many have already managed to recoup their losses. The S&P 500, DJIA, and the MCSI World Index all hit new record highs on December 17.

The DAX has also recovered all its pandemic-induced losses to hit new highs and is now up 1.5% since the start of the year, outperforming the wider region considering the Euro STOXX 50 index is down 6.5%.

Meanwhile, the FTSE 100 has failed to stage such a recovery and is still down 15% year-to-date. The main reason it has underperformed is because it has been plagued by Brexit uncertainty, and the risks associated with Brexit are considered greater for the UK than the EU.

Start trading the FTSE 100 and other indices today.

How could a Brexit deal impact the FTSE 100?

A last-minute Brexit deal would help remove the biggest cloud of doubt that has lingered over UK equities for the last four years. The immediate reaction to any deal being announced would therefore be positive for the index and allow it to start recovering at a quicker rate.

However, the index is likely to remain volatile as everyone dives into the text of what is likely to be a hefty document. For markets, any deal is better than a no-deal, but the devil will be in the detail.

Any deal would aim to minimise disruption, but it wouldn’t mean everything would continue as normal and many businesses would still have to adapt to changes introduced overnight on January 1. For example, the services industry – which accounts for 80% of UK employment – is not expected to be covered by a last-minute deal.

Plus, there is the role of the pound to consider. Sterling has proven more sensitive to Brexit talks, strengthening on hopes of a deal and weakening when one looks unlikely. The FTSE 100 prefers a weaker pound considering over 70% of their revenues are made abroad, allowing them to benefit when they convert their overseas earnings into softer sterling.

Therefore, a stronger pound in the event of a deal could limit the FTSE 100, but it is unlikely to prevent the FTSE 100 heading higher over the longer-term in the event of a deal as appetite for UK equities increases. Today, with a deal expected imminently, the FTSE 100 is broadly flat in early trade while the pound has rallied 0.5% against the euro and 0.6% against the dollar.

Uncertainty is why the FTSE 100 has lagged other indices this year, but a last-minute deal would start to bring the clarity needed to reinstall confidence and allow the FTSE 100 to catch up.

However, Brexit is not the only headwind to the FTSE 100 and other indices. The coronavirus pandemic is far from over and the focus next year will switch to the speed at which countries can vaccinate their citizens and get their economies back up and running.

How to trade Brexit

You can start trading the opportunities presented by Brexit by opening a City Index account here.

From time to time, StoneX Financial Pty Ltd (“we”, “our”) website may contain links to other sites and/or resources provided by third parties. These links and/or resources are provided for your information only and we have no control over the contents of those materials, and in no way endorse their content. Any analysis, opinion, commentary or research-based material on our website is for information and educational purposes only and is not, in any circumstances, intended to be an offer, recommendation or solicitation to buy or sell. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. No representation or warranty is made, express or implied, that the materials on our website are complete or accurate. We are not under any obligation to update any such material.

As such, we (and/or our associated companies) will not be responsible or liable for any loss or damage incurred by you or any third party arising out of, or in connection with, any use of the information on our website (other than with regards to any duty or liability that we are unable to limit or exclude by law or under the applicable regulatory system) and any such liability is hereby expressly disclaimed.

City Index is a trading name of StoneX Financial Pty Ltd.

The material provided herein is general in nature and does not take into account your objectives, financial situation or needs.

While every care has been taken in preparing this material, we do not provide any representation or warranty (express or implied) with respect to its completeness or accuracy. This is not an invitation or an offer to invest nor is it a recommendation to buy or sell investments.

StoneX recommends you to seek independent financial and legal advice before making any financial investment decision. Trading CFDs and FX on margin carries a higher level of risk, and may not be suitable for all investors. The possibility exists that you could lose more than your initial investment further CFD investors do not own or have any rights to the underlying assets.

It is important you consider our Financial Services Guide and Product Disclosure Statement (PDS) available at www.cityindex.com/en-au/terms-and-policies/, before deciding to acquire or hold our products. As a part of our market risk management, we may take the opposite side of your trade. Our Target Market Determination (TMD) is also available at www.cityindex.com/en-au/terms-and-policies/.

StoneX Financial Pty Ltd, Suite 28.01, 264 George Street, Sydney, NSW 2000 (ACN 141 774 727, AFSL 345646) is the CFD issuer and our products are traded off exchange.