By LAWRENCE WHITE, BEN MARTIN
Saturday, December 8, 2018
LONDON -- As lawmakers gather in Britain's Parliament on Tuesday to vote on the future of the country's relationship with Europe, traders in London's financial hub will be bracing for a potential burst of market turmoil that could affect the Brexit process itself.
Sterling plunged more than 10 per cent in the immediate aftermath of Britain's shock vote to leave the European Union in June, 2016, while US$2-trillion was wiped off global stock markets.
This time, traders expect a more muted response. Prime Minister Theresa May is widely expected to fail in her attempt to win support for her Brexit plan, meaning the immediate market reaction could be limited - unless there is a surprise.
But as her failure would usher in yet more uncertainty over the Brexit process, big market swings may follow - and some commentators have suggested heavy market losses could even convince lawmakers to back Ms. May if she tried for a second vote.
"On the morning after the 2016 referendum result the London Stock Exchange kind of broke because there were such wide spreads on stocks, market makers weren't finding prices," said Laith Khalaf, senior analyst at Britain's biggest direct investment service Hargreaves Lansdown.
"We are less likely to see turmoil like that as people are ready for a range of outcomes this time, but we could see some big swings," he said.
Either way, banks and brokerages will be prepared. Barclays PLC, Investec PLC, JPMorgan Chase & Co. and Nomura Holdings Inc. are among banks in London planning to draft in traders and analysts outside of normal business hours on Tuesday, sources familiar with the matter said, as they prepare for an influx of calls from investors keen to understand or make bets on the implications of the vote. With the result not expected to become clear until around 7 p.m. GMT, London's stock exchange will be closed, meaning it will be sterling - traded 24 hours a day around the world - that will react first.
Nomura has booked hotel rooms, a bank spokesman said, for bleary-eyed traders to use if necessary after a night that could set the future for the £2.8-trillion ($4.7-trillion) British economy for generations.
"We are going to be glued to our trading screens or television wherever we are," said Neil Jones, head of hedge fund foreign-exchange sales at Mizuho Bank Ltd., another Japanese bank in London.
It is not just in London where traders will be gripped by the Brexit vote, with less than four months to go before Britain is due to leave the EU on March 29.
In foreign-exchange hubs such as New York, Hong Kong and Tokyo, traders will watch for signs of Ms. May's deal being voted through - seen as indicating an orderly Brexit and therefore positive for sterling - or rejected, signalling more uncertainty.
"If we see it becomes a true volatility event, then the ability to step away from the desk will be challenged. Of course, arrangements will be made to feed the troops and no doubt there will be a few ales after to unwind," said Chris Weston, head of research at currency broker Pepperstone Group Ltd. in Melbourne.
Traders will be focused on helping investor and corporate clients with what each development in the vote means for them.
Ms. May's compromise Brexit deal has dismayed both supporters of a more decisive break with the EU and those who want ties to remain as close as possible. Her reliance for a majority in Parliament on a Northern Irish party that opposes the deal has made her position precarious. Should she defy the odds, analysts say shares in sectors most directly exposed to the British economy such as banks, insurers, home builders and retailers could surge.
British Prime Minister Theresa May, seen on Downing Street in London on Wednesday, isn't expected to win support for her widely criticized Brexit plan.
KIRSTY WIGGLESWORTH/ASSOCIATED PRESS