Post Article 50 – Market Impact

20 April 2017

It’s taken almost a year, but on 29 March Theresa May signed the letter triggering Article 50.  That afternoon, the European Council President, Donald Tusk received the letter from the British Ambassador to the European Union, formally confirming the UK’s intention to leave the EU and setting into motion a two-year countdown to Brexit.

Article 50 at a glance

Article 50 of the Treaty of Lisbon grants any EU member the right to quit unilaterally and outlines the procedure for doing so. It gives the leaving country two years to negotiate an exit deal. Any deal must be approved by a “qualified majority” of EU member states and if needed the same can also be vetoed by the European Parliament in 2019.

A wobbly Wednesday for financial markets

The Pound witnessed a choppy trading session on the day that the British PM officially triggered Article 50.  Market participants seemed anxious with the reality of Brexit setting in, and this led to Sterling’s tumble against the greenback in early morning trading.  It did manage to claw back during afternoon trade however, after May indicated in her speech to Parliament that she wanted to keep strong ties with Europe.

Meanwhile, the FTSE 100 index opened slightly higher on Wednesday morning, ahead of the official start of Brexit negotiations. By midday it had begun slipping though, hitting a low point 20 minutes after Article 50 was triggered.

GBP/USD on 29 March 2017

Financial market performance post Article 50 trigger

Contrary to expectations, financial markets took the momentous decision in their stride.  It seems the substantial impact on Sterling and stock market indices had already been felt and priced on during the nine months since the referendum outcome last June.

The invocation of Article 50 allows British firms to move ahead with their plans to reduce any negative impacts from Brexit and also identify new trade agreements. This gradual reduction in uncertainty has provided a sense of assurance to investors and has thus helped indices to perform better than expected.


A tight timetable for complex matters

Judging by the market reaction so far, Britain’s pre-announced, long-anticipated decision to trigger Article 50 has been a non-event.  This does not by any means suggest that it will be a smooth journey going forward. The focus now shifts to the negotiation phase between the UK and the EU. To state the obvious, Brexit involves a long, complicated and arduous set of negotiations, of which the commercial outcomes and their long-term effects on the British economy are unlikely to be clear for many years to come. Thus, the next two years will be crucial for determining the future economic success of an independent Britain. Within this period, Theresa May plans to chalk out not only Britain’s exit strategy but also future trade relations with the EU. As a part of this strategy to cement her place in the political landscape and give her a firm bargaining position in Brexit talks, the UK Prime Minister has called for early general elections, scheduled to be held on 8 June 2017.

FTSE100 & FTSE250