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A comprehensive overview of the latest on Brexit by Deutsche Macro Strategist Oliver Harvey. The UK Parliament has been suspended for five weeks until the end of October, meaning it has little opportunity to block a no-deal Brexit proposal. Parliament will attempt to legislate and prevent a no-deal or, i.e., pass a law to require the government to extend Article 50 (which has happened before, earlier this year), or bring Johnson down through motion of no confidence. Through the latter, there is a two-week opportunity to agree on a caretaker government. Deutsche views EUR/GBP under a no-deal jumping above parity and some equities with international exposure might be hurt by a pound slump. Harvey puts a 50% probability of a no-deal happening.
Why does this matter? This morning the pound slumped to its lowest levels since the 2016 flash crash, dropping as much as 0.62% after Johnson threatened to call an election on 14th October. Brexit is clearly hurting the UK, but other European countries are seeing tangible impacts – Sweden (see below) and Germany, whose dependence on exports closely tracks the ups and downs of Brexit.
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