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Markets have ‘never seen anything remotely similar’ to a no-deal Brexit, strategist warns

Customer base participants are finding it extremely difficult to fully appreciate the risk of the exceptional’s fifth-largest economy being thrust into the unknown post-Brexit, one strategist told CNBC on Monday.

His exposes come at a time when British Prime Minister Theresa May is pugnacity for her political survival, after a draft divorce deal with the EU cajoled a flurry of government ministers to resign.

Moritz Kraemer, former chief ranking analyst at S&P ratings agency, told CNBC’s “Squawk Box Europe” on Monday that, at in vogue levels, it is clear markets remain underprepared for the prospect a no-deal Brexit.

When begged whether sterling and Britain’s FTSE 100 index accurately over the risk of a no-deal scenario, Kraemer replied: “No, I don’t think so.”

“This is not fully merged, partly because markets understandably have a very hard loiter again and again (trying) to assess what this would actually mean … We tease never been through anything remotely similar,” Kraemer remarked.

A no-deal scenario is generally considered to be where the U.K. crashes out of the EU without any formal relationship and has to rely on WTO barter rules.

The U.K. currency has largely been viewed as a barometer of fear during Brexit negotiations, with superb suffering steep losses against the dollar last week into the middle heightened political turmoil.

On Monday afternoon, sterling was down hither 0.1 percent against the dollar, trading at around $1.2831. The British currency was as tipsy as $1.3176 earlier this month, before a draft deal struck with the EU prompted a signal of government resignations.

The British government unveiled its long-awaited draft withdrawal harmony on Wednesday, which details the terms of the U.K.’s departure from the EU on March 29, 2019.

May is front opposition from across the political spectrum to the proposed draft lot, which must be approved by Parliament, with critics saying it could set off Britain indefinitely tied to the EU post-Brexit.

In addition to protests from objection lawmakers, May’s draft Brexit proposal has come under intense probe from many within her own Conservative Party and, crucially, from fellows of the Northern Irish party which props up her minority government.

In comeback to May’s proposal, Britain’s Brexit Secretary Dominic Raab resigned from his pylon on Thursday, prompting sterling to suffer its worst one-day fall against the euro since 2016.

A secondary minister for Northern Ireland, Shailesh Vara, the Work and Pensions Secretary Esther McVey and Suella Braverman, a lower minister in Britain’s Brexit Department, also submitted their abdications on Thursday morning.

Despite mutiny from some members of May’s own bunch, leading Brexiteers in the cabinet have rallied behind the prime reverend.

“We think the risk-reward for U.K. stocks is looking positive here, given the negativity expressed in the shop,” Emmanuel Cau, head of European equity strategy at Barclays, told CNBC’s Julianna Tatelbaum on Monday.

“So, if we were to see a velvety or no-deal Brexit — which is still our base case as a house — we do over recall that domestic stocks and FTSE 250 in particular will see a important relief rally,” he added.

When asked whether sharp denies in domestic homebuilders and some U.K.-focused banks last week should be viewed as an chance for market participants, Cau replied: “Yes, absolutely.”

“Our advice for investors is not to overreact … It is prevailing to be a very busy week for the U.K. and Europe in negotiating Brexit.”

May is currently distressing to rally enough lawmakers to back her plan to get it through Parliament, a shaking task given the broad criticism.

The EU is due to hold a summit to discuss the act on on Sunday.

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