Traders ex­pect­ing muted re­sponse to U.K. Par­lia­ment’s Brexit vote next week

The Globe and Mail (BC Edition) - - REPORT ON BUSINESS - LAWRENCE WHITE BEN MARTIN LON­DON

As law­mak­ers gather in Bri­tain’s Par­lia­ment on Tues­day to vote on the fu­ture of the coun­try’s re­la­tion­ship with Europe, traders in Lon­don’s fi­nan­cial hub will be brac­ing for a po­ten­tial burst of mar­ket tur­moil that could af­fect the Brexit process it­self.

Ster­ling plunged more than 10 per cent in the im­me­di­ate af­ter­math of Bri­tain’s shock vote to leave the Euro­pean Union in June, 2016, while US$2-tril­lion was wiped off global stock mar­kets.

This time, traders ex­pect a more muted re­sponse. Prime Minister Theresa May is widely ex­pected to fail in her at­tempt to win sup­port for her Brexit plan, mean­ing the im­me­di­ate mar­ket re­ac­tion could be lim­ited – un­less there is a sur­prise.

But as her fail­ure would usher in yet more un­cer­tainty over the Brexit process, big mar­ket swings may fol­low – and some com­men­ta­tors have sug­gested heavy mar­ket losses could even con­vince law­mak­ers to back Ms. May if she tried for a sec­ond vote.

“On the morn­ing af­ter the 2016 ref­er­en­dum re­sult the Lon­don Stock Ex­change kind of broke be­cause there were such wide spreads on stocks, mar­ket mak­ers weren’t finding prices,” said Laith Kha­laf, se­nior an­a­lyst at Bri­tain’s big­gest di­rect in­vest­ment ser­vice Hargreaves Lans­down.

“We are less likely to see tur­moil like that as peo­ple are ready for a range of out­comes this time, but we could see some big swings,” he said.

Ei­ther way, banks and bro­ker­ages will be pre­pared. Bar­clays PLC, In­vestec PLC, JPMor­gan Chase & Co. and No­mura Hold­ings Inc. are among banks in Lon­don plan­ning to draft in traders and an­a­lysts out­side of nor­mal busi­ness hours on Tues­day, sources fa­mil­iar with the mat­ter said, as they pre­pare for an in­flux of calls from in­vestors keen to un­der­stand or make bets on the im­pli­ca­tions of the vote. With the re­sult not ex­pected to be­come clear un­til around 7 p.m. GMT, Lon­don’s stock ex­change will be closed, mean­ing it will be ster­ling – traded 24 hours a day around the world – that will re­act first.

No­mura has booked ho­tel rooms, a bank spokesman said, for bleary-eyed traders to use if nec­es­sary af­ter a night that could set the fu­ture for the £2.8-tril­lion ($4.7-tril­lion) Bri­tish econ­omy for gen­er­a­tions.

“We are go­ing to be glued to our trad­ing screens or tele­vi­sion wher­ever we are,” said Neil Jones, head of hedge fund for­eign-ex­change sales at Mizuho Bank Ltd., an­other Ja­panese bank in Lon­don.

It is not just in Lon­don where traders will be gripped by the Brexit vote, with less than four months to go be­fore Bri­tain is due to leave the EU on March 29.

In for­eign-ex­change hubs such as New York, Hong Kong and Tokyo, traders will watch for signs of Ms. May’s deal be­ing voted through – seen as in­di­cat­ing an or­derly Brexit and there­fore pos­i­tive for ster­ling – or re­jected, sig­nalling more un­cer­tainty.

“If we see it be­comes a true volatil­ity event, then the abil­ity to step away from the desk will be chal­lenged. Of course, ar­range­ments will be made to feed the troops and no doubt there will be a few ales af­ter to un­wind,” said Chris We­ston, head of re­search at cur­rency bro­ker Pep­per­stone Group Ltd. in Melbourne.

Traders will be fo­cused on help­ing in­vestor and cor­po­rate clients with what each de­vel­op­ment in the vote means for them.

Ms. May’s com­pro­mise Brexit deal has dis­mayed both sup­port­ers of a more de­ci­sive break with the EU and those who want ties to re­main as close as pos­si­ble. Her reliance for a ma­jor­ity in Par­lia­ment on a North­ern Ir­ish party that op­poses the deal has made her po­si­tion pre­car­i­ous. Should she defy the odds, an­a­lysts say shares in sec­tors most di­rectly ex­posed to the Bri­tish econ­omy such as banks, in­sur­ers, home builders and re­tail­ers could surge.

KIRSTY WIG­GLESWORTH/AS­SO­CI­ATED PRESS

Bri­tish Prime Minister Theresa May, seen on Down­ing Street in Lon­don on Wed­nes­day, isn’t ex­pected to win sup­port for her widely crit­i­cized Brexit plan.

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