Brexit negotiations: On to phase 2? - TDS

With news overnight that the UK had capitulated to the EU’s demands on the Brexit “divorce bill”, it looks likely that negotiators will receive the thumbs-up to proceed to Phase 2 talks in the New Year, according to analysts at TDS.

Key Quotes

“We caution that citizens’ rights and Irish border issues still need to progress in the coming weeks to ensure this.”

“While the news comes about two weeks ahead of the 14/15 Dec EU leaders summit, it is in line with our view that Phase 2 talks begin in January and the EU and UK then simultaneously begin discussions on a transition agreement.”

“While two-way risks for GBP dominate overall, these developments point to some near-term upside potential for sterling. We favour 1M EURGBP put spreads here as the pound’s overall backdrop remains complex.”

“Bearish move dominates the Gilt curve with markets fully priced for the next BoE rate hike for August 2018 now, compared to January 2019 following the November BoE meeting. Headline news around Brexit continues to support our recommended steepening bias for the curve.”