It’s official: May is out and Boris is in. But despite the political changes this could bring, currency markets hardly reacted. £-sterling started the month at €1=£0.897, and remains at that level at the time of writing. It has weakened marginally since last weekend. Negotiators on both sides of the channel have signalled intransigence ahead of any new talks. Talk of an election before the Halloween deadline is growing. After Mr Johnson’s question-time pummelling of Mr Corbyn (Quentin Letts in The Times), markets may not fear the prospect of a left-wing government so much. The opinion polls will be interesting over the next few weeks. Still, Mr Johnson will not forget Mrs May’s electoral blunder and certainly won’t be eager to hold the record for shortest tenure.
For investors, the risks remain large, and the outcomes binary and balanced. Our rough calculus is that “no deal” has about a 33% chance – causing sterling to fall 10-20% – while “deal” is more likely at about 66%, sending sterling up about 5-10%. While we think about Brexit outcomes often, we don’t have any more information than others, so we don’t think this is a good area to carry active risk for our clients.