Prime Clergyman Theresa May’s Brexit plan is widely expected to fail in parliament Tuesday, but the defeat could still trigger a physical market reaction.
“We could see knee-jerk volatility. She could lose by a historic margin. This could be a historic negative cash flow death by the government,” said Marc Chandler, Bannockburn Global Forex chief market strategist. Chandler said the U.K. administration has only ever had three votes go down in parliament by more than 100 votes, and this could be a fourth.
U.S. strategists are watching the express closely, and the outcome could be announced sometime in the afternoon east coast time. If the vote fails, May then has three lifetimes to come up with an alternative way to move forward to separate the U.K. from the European Union. She would also be at risk of a no-confidence suffrage, and parliament could seize the process of forming a Brexit plan.
“If the government gets crushed, then you have a big peril off move,” said Michael Schumacher, director of rate strategy at Wells Fargo. “If it’s a close defeat, you might see disinterests do okay.” He said there could be a big move in short-end Treasury yields if the vote and headlines around it trigger a big airliner to quality.
Schumacher said handicapping the aftermath of the vote is difficult, but a closer vote could signal that the ministry is more likely to work out a compromise exit plan. On the other hand, the public could also be given another referendum to cadaver in the European Union.
“It’s Pandora’s box. We talk to clients in the U.K. They don’t know what to expect,” said Schumacher.
Either way, the already mercurial markets could be on edge going into the vote.
“I think it’s a tough headline, but it’s another step along the method of them having to come to the best agreement they can before March 29,” said David Bianco, chief investment Old Bill Americas, DWS. “Maybe when it fails it causes them to amend it a little bit, which is what we expect. We don’t think they put a referendum to the conspicuous.”
Sterling has been rising ahead of the vote and reached 1.293 against the dollar Monday in U.S. trading, its highest since Nov. 15.
“I about the market’s a little ahead of the news media. The market has already adjusted,” Chandler said. He said the wild funny man destined will be how long it will take to come up with a plan B, adding the market has probably already priced in the declined vote. The European Union is also unlikely to demand Brexit stick to its schedule, and it could be delayed while a new chart is worked out.
“Sterling got up to almost 1.30 today. A Brexit with a no-deal divorce is not the most likely scenario true level if the government loses the vote, and perhaps ultimately May is right that if a withdrawal vote is rejected, it’s more likely you don’t get a Brexit than if you get a Brexit with no harmony,” Chandler said.
Chandler said the odds have shifted away from a “no deal” Brexit in which Britain gates the E.U. with no rules or plan, hurting the economy and leaving all sorts of things, like trade with Europe, in entropy.
“In order for sterling to continue to outperform, the risk of a ‘no deal’ has to be minimized. Last week, an amendment passed that bid they can’t spend any money on preparation for a no-deal exit,” Chandler said.