‘No Champagne Yet’ as Investors, Analysts Greet Brexit Deal With Caution 

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(Bloomberg) — For a while there, investors and analysts got a taste of what’s in store if they ever escape the long shadow of Brexit. Unfortunately, most of them think freedom is still a long way off.

Assets across Europe briefly surged on Thursday as markets embraced the news that a Brexit deal had been struck in Brussels. But as traders assessed the obstacles ahead, the giddy mood faded. The deal — struck just in time to present to EU leaders as they gather in Belgium’s capital — still needs the approval of the British Parliament. Northern Ireland’s DUP, whose votes may be key, have said they will not back the accord.

“It might not be time to pop open the champagne quite yet,” said Jim McCormick (NYSE:), the global head of strategy at NatWest Markets. “But even if it is voted down by U.K. parliament the Tories will have a stronger hand heading into a general election. The dynamic clearly changed.”

Here are some early reactions from investors and strategists across Europe:

Petr Krpata, chief currency strategist, ING Bank:

  • “The deal announced but the key hurdle of the deal being voted into the U.K. Parliament remains. With the DUP not changing its position, it is questionable whether the deal will get through the Parliament. There is now risk the current deal will have the same fate of Theresa May’s.”
  • The potential for sterling to rally is “watered down by the DUP comments and the subsequent uncertainty about the outcome of the Parliamentary vote.”

Nick Wall, portfolio manager, Merian Global Investors:

  • “The worst case scenario seems to be off the table in this Parliament and probably in the next if Johnson gets a majority. A near-term deal approved by parliament would probably help risk assets the most, but a setback should be short lived.”

Seema Shah, chief strategist, Principal Global Investors:

  • “Investors should not be too enthusiastic as the endless negotiations and uncertainty over the past three years will take its toll on the country. Even with a Brexit agreement, the country will suffer a lot of economic pain as a result of the exit from the bloc.”

Uwe Maderer, head of fixed income, LBBW Asset Management

  • “Brexit cliff edge seems to be over and that changes the market dynamics a bit, although the Parliamentary vote is still pending. The political will has clearly changed towards achieving a deal.”
  • “The deal as it is all about goods and not services and only a low level of alignment with EU standards. That is clearly negative for longer term growth in the U.K. but surely better than no-deal and a WTO-based relationship with the EU.”

Lars Kreckel, global equity strategist, Legal & General Investment Management:

  • “It’s impossible to trade the twists and turns of the news flow. Generally, the stronger pound is bad for versus other markets, but some of that should be offset by international flows returning to U.K. equities.”

Jim McCormick at NatWest again:

  • “What is different is that no one sees kicking the can down the road as an option any more. So old red lines are less red. I’ve been bearish on German fixed income and this is certainly supportive. You may be seeing start of dollar turn as well. European political risks have been a dollar boost.”

Jane Foley, head of currency strategy, Rabobank:

  • “We have to remember that PM May had a deal too.”

Andreas Meyer, portfolio manager, Aramea Asset Management:

  • “An important political obstacle seems to be resolved that paralyzed the market. However I do see essential residual risks, whether Johnson is able to push the deal through at home. That means more surprises might be ahead. Further cooperation with the EU (and not a hard deal) increases the likelihood that regulatory requirements for banks and insurance companies will be taken over by U.K. institutions and the stability of issuers will be maintained. I like to invest in HSBC, Lloyds (LON:), RBS (LON:), Barclays (LON:) and now the bold Brexit stamp, which influenced them, is significantly weaker.”

Ricardo Gil, head of asset allocation, Trea Asset Management in Madrid:

  • “The deal is positive as it removes uncertainty that was weighing on the market, although most of the optimism may have already been priced in. I don’t expect to increase our exposure to equity following the deal, but we will go longer on banks.”

Artur Baluszynski, head of research, Henderson Rowe:

  • “Big win for Boris. If he manages to get it through parliament, we should see a wave of risk-on trades coming into U.K. market.”

Michael Hewson, chief market analyst, CMC Markets:

  • “Market volatility is likely to continue. The U.K. and EU say they have a deal, but the DUP isn’t on board, so there’s little chance of it getting through the House of Commons. Why claim there’s a deal?”
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