Brexit will create long term opportunities in the short term spurts

Global markets started the week on a down note from US political dysfunction and rallied in hopes of tax reform. In global affairs the markets seem to be discounting (or have priced in) the official invoking of article 50. Given the dramatic shifts in US politics, it is easy to understand why there is less emphasis on an event that will take 2 years to sort out. This is why it will be important to understand what could be over the horizon and find opportunities or risks while others worry in the near term.

The Pound remains at a post-brexit low and seems to have a lot of bad news baked into it. It would make sense from a longer term point of view to look for opportunities in certain asset classes (such as Gilts) that will provide some upside potential and favorable exchange rate movement. With elections in France and Germany this year there will be plenty of volatility and headlines to create some buying opportunities in the UK market and being prepared for those opportunities will be important. It should be good to have a base case scenario and list out what is expected bad news vs unexpected. Below is a good start to this list.

• Elections in Germany and France will generate a lot of pro-European rhetoric and some Brexit bashing.

• Negotiations will no doubt be off to a slow start and will have some twists at the onset as Theresa May and Brussels gauge their positioning.

• Money will flow into and out of the region based on the global markets "political risk" appetite, mainly from US politics. 

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• Interest rate differentials (specifically in the US and UK) are largely priced in but any changes, on one side or the other, could create a shift if rate and currency expectations.