Brexit is finally here

After court battles, a House of Lords dissent and the emerging prospect of a Scottish Referendum, we have finally seen the UK government trigger Article 50, and Brexit. On 29 March, UK PM Theresa May officially notified her European counterparts of the UK’s intention to leave the EU by delivering a letter of intention to European Council President Donald Tusk. This provides one of the most exciting opportunities to trade stock markets since the EU referendum and the US election, but the jury remains split on how the process will ultimately pan out.

So, what comes next? When will Europe respond? Here are some of the key Brexit dates to put in your calendar.

On 31 March the EU President Donald Tusk should provide the Union’s first response to Brexit, while there may also be comments from the EU’s chief negotiator, Michel Barnier. The EU will then undertake a series of special meetings, the first of which will take place on 29 April, to piece together the group’s negotiating hand, while formal negotiations between the UK and the EU are expected to begin sometime in June.

Added into the schedule of events is, of course, the French presidential election, with the first and second rounds of voting taking place on 23 April and 7 May respectively, while the German federal election takes place in September. This throws up the prospect of the UK having to negotiate with new leaders of the two leading economic powers in Europe, who may potentially use Brexit as a platform to flex their political muscles.

With all of this happening in the space of just a few weeks, there could be room for a significant market reaction in either direction. With no set course for negotiations, sometimes financial market movement might not reflect media headlines. Our in-house research is here to help you dissect the news and remove the grey noise. Why not try it out beforehand by signing up here to have it delivered directly to your inbox before we begin Brexit.  

How might stock markets react?

While market reaction might not be as sharp and immediate as the referendum aftermath – after all, it won’t come as a surprise – however, the divorce negotiation will likely see markets continually influenced next two years.

Talks will cover a multitude of topics, including (but certainly not limited to) free trade, determining legal jurisdiction, travel and working rights of UK and EU citizens in the others’ respective territory and, of course, access to the European Single Market. With majority approval from 27 states needed, the worst-case scenario leaves the UK without any negotiated deal and forced to adopt WTO trade rules. This leaves Britain to go it alone against the rest of the world as an outsider, not only Europe but also in key areas such as the US and Asia.

This could see UK companies listed on the London Stock Exchange, as well as Pound Sterling, sell-off sharply as a Hard Brexit becomes a reality. So how can you prepare for this potentially difficult scenario?

How can you prepare should things turn South?

The EU could drive a hard bargain, not wanting to make it look like the UK is getting a good deal in order to deter other countries from offering similar referendums on membership. As a result, there may be potential during the next two years for the UK government to be on the receiving end of some serious blows to their proposed plans, perhaps on a weekly or even daily basis. This might cause the stock market to react negatively on occasion.

Subsequently, we could see the UK Index , Pound Sterling and the Euro move significantly in reaction to the flavour of the day, whether that includes agreements being reached or some talks becoming in danger of falling through.

The prospect of an everchanging horizon could be daunting for some, but it needn’t be. By trading with Accendo Markets, you’ll have the ability to take both long and short positions, meaning that you’re able to profit from a stock market moving in either direction. With Brexit being a polarising event, we provide you the tools to benefit.

Do you see Brexit having a negative effect on the UK stock market, the Pound or the Euro? Take out a short position, that allows you to profit when markets move downwards. More details on this popular strategy during a bear market can be found here on our website.

Alternatively, you may believe that Brexit negotiations may provide a period with some stormy clouds, but also some sunny spots during the negotiations. In this scenario, you could hedge your portfolio – by using both long and short positions – in order to profit from market movements in either direction.

For example, if you were hoping to maintain a long position worth £10,000 in Barclays, but thought that the bank’s share price could fall during Brexit proceedings, you could open a short position with Accendo to the tune of £10,000 in order to negate a share price fall over a time period of your choice. For further details on how you can use short positions to hedge against falling prices, watch our educational video on the subject here.

But could it really be that bad?

It may be obvious to point out, but the EU also has vested interest in maintaining strong links with the UK. German car manufacturers, for example, provide a significant volume of exports to the UK, while governments in countries with a high number of citizens living in the UK, such as Poland, will hope to guarantee their rights.

Another country with particular interest in an acceptable deal for the UK is Spain. With the country not wanting to prompt further independence calls from its Catalonian territory, it might not want to give Britain a deal that might provoke a second Scottish referendum, not to mention the potential loss of British expats’ trade!

Finally, the UK provides a key access point for many European financial institutions to US and Asian markets. Without wanting to waste millions of dollars and upend hundreds of thousands of people and families, banks may look to keep some operations going in Britain, requiring some form of deal for the all-important sector.

So far, the EU has said that it too is hoping a deal can be reached before the March 2019 deadline for negotiations is reached. But without a crystal ball, it is impossible to say that this will definitely be the case!

Over the page, we analyse six UK 100 stocks - three that reacted negatively and three that reacted positively to the referendum - and provide an index example that could present you with an Article 50 trading opportunity!

Notable Negatives: Could these stocks find themselves falling once again?

1) Aviva (AV.)

Will shares return to 570p highs (+8.2%) or pull back towards the referendum day lows of 290p (-45%)?

• Has a significant European operating base, could a Hard Brexit create difficulties?
• Post referendum rally sees successful challenge of 2-year resistance at 500p
• Stochastics and Relative Strength Index (RSI) recovering from overbought
• Directional Indicators converging bearishly

Broker Consensus: 48% Buy, 39% Hold, 13% Sell

Bullish: Day by Day, Buy, Target 615p, +17%, (9 Feb)

Average Target: 522p, -0.9% (24 Mar)

Bearish: Exane BNP Paribas, Underperform, Target 420p, -20% (20 Mar)

N.B. All pricing and consensus data was sourced from Bloomberg on 24 March. Please contact us for a full, up to date rundown.

2) easyJet (EZJ)

Will shares return to pre-referendum highs of 1500p (+50%) or pull back to 4-year lows of 850p (-45%)?

• Could lose access to the European Common Aviation Area in a Hard Brexit scenario
• Having fallen over 500p after the referendum, has since been unable to overcome falling highs resistance
• MACD and Momentum positive
• Directional Indicators showing no bias as price approaches post-Brexit resistance

Broker Consensus: 21% Buy, 54% Hold, 25% Sell

Bullish: Jyske Bank, Buy, Target 1350p, +34% (24 Jan)

Average Target: 1001p, -0.4% (24 Mar)

Bearish: MainFirst Bank, Underperform, Target 700p, -30% (7 Mar)

N.B. All pricing and consensus data was sourced from Bloomberg on 24 March. Please contact us for a full, up to date rundown.

3) Taylor Wimpey (TW.)

Will shares break out to 2016 highs of 210p (+8.5%) or breakdown to referendum lows of 110p (-45%)?

• One of the biggest losers on day after referendum at -28%, falling by a further 15% the following Monday
• Post referendum recovery rally to pre-Brexit levels
• Directional Indicators diverging bullishly; MACD and Momentum marginally positive
• Stochastics and Relative Strength Index overbought

Broker Consensus: 65% Buy, 29% Hold, 6% Sell

Bullish: HSBC, Buy, Target 211p, +9.0% (22 Mar)

Average Target: 193p, -0.3% (7 Mar)

Bearish: Liberum, Hold, Target 150p, -23% (1 Mar)

N.B. All pricing and consensus data was sourced from Bloomberg on 24 March. Please contact us for a full, up to date rundown.

Possible Positives: Could Article 50 provide a referendum-repeating boost?

1) BP (BP.)

Will shares return to 2014 highs of 520p (+15%) or pull back towards 2016 lows of 310p (-31%)?

• Any fall in Sterling has positive translational effect for producer of Dollar-denominated Crude Oil products
• Rose 2% on day after referendum, with gains for June totaling 22%
• Stochastic oscillator facing falling highs resistance; MACD and Momentum turned negative
• Directional Indicators showing bearish bias as price close to 12-month rising support

Broker Consensus: 41% Buy, 59% Hold, 0% Sell

Bullish: Barclays, Overweight, Target 625p, +38% (16 Mar)

Average Target: 515p, +14% (24 Mar)

Bearish: Natixis, Neutral, Target 400p, -12% (8 Feb)

N.B. All pricing and consensus data was sourced from Bloomberg on 24 March. Please contact us for a full, up to date rundown.

2) Fresnillo (FRES)

Will shares return to 3-year highs of 2050p (+33%) or pull back to post-referendum lows of 1000p (-35%)?

• Gold price spiked on referendum result, could Article 50 provoke more (bullish for gold) uncertainty?
• Having bounced from 1100p support, could FRES overcome 1600p resistance in second challenge?
• Momentum and MACD positive, stochastics oversold
• Directional Indicators diverging bullishly

Broker Consensus: 19% Buy, 56% Hold, 25% Sell

Bullish: Credit Suisse, Outperform, Target 1948p, +26% (25 Jan)

Average Target: 1428p, -7.8% (24 Mar)

Bearish: Goldman Sachs, Sell, Target 1050p, -32% (9 Mar)

N.B. All pricing and consensus data was sourced from Bloomberg on 24 March. Please contact us for a full, up to date rundown.

3) National Grid (NG.)

Will shares rally to 1150p (+13%) or pull back towards 2016 lows of at 890p (-14%)?

• Could Article 50 pave the way for a new UK-US trade deal, where earns 23.5% of profits?
• Price challenging post Brexit falling highs resistance at 1020p
• Stochastic oscillator and RSI overbought; Momentum and MACD positive
• Directional Indicators diverging bullishly

Broker Consensus: 37% Buy, 47% Hold, 16% Sell

Bullish: JPMorgan, Overweight, Target 1100p, +8.3% & Morgan Stanley, Overweight, Target 1100p, +8.3% (24 Mar)

Average Target: 1007p, -1.0% (24 Mar)

Bearish: Credit Suisse, Underperform, Target 850p, -16% (24 Jan)

N.B. All pricing and consensus data was sourced from Bloomberg on 24 March. Please contact us for a full, up to date rundown.

Index example: UK 100

Will the index rally to fresh all-time highs of 7450pts (+2.3%);

or pull back towards post-referendum lows of 6650pts (-8.7%)?

• The day after EU referendum saw sharp sell-off followed by rapid recovery and rally in the proceeding days
• Price falling back from its March all-time high. Could it fall to 7135pt support at October’s former all-time high?
• Stochastic oscillator and RSI breakdown from 1-month support
• Directional Indicators diverging bearishly

N.B. All pricing was sourced from IT Finance on 27 March. Please contact us for a full, up to date rundown.

Want to take advantage of the above opportunities right now?

Whether you see UK stocks going up or down for the remainder of the year, tradable opportunities will present themselves regularly. We’re here to help you weed them out and capitalise on them. Accendo Markets can help you increase your profit potential with the use of leveraged instruments such as CFDs, a flexible alternative to traditional shares that is currently exempt from UK stamp duty.

CFDs: Like shares, but more flexible

The example above shows how buying 1,450 shares in British Land @ £6.90 requires an outlay of around £10,000 plus commission (see left-hand box), while the same exposure via a CFD requires about £500 plus commission (see right-hand box). If a trader invests in British Land, one would assume they believe the share price is likely to move in their favour. After considering the ‘worst case scenario’ and assigning funds to cover it, the trader may conclude there’s little point in exposing the full £10,000 to the BLND shares - some of that capital could be put to good use elsewhere in the markets. (Source: IG, Prices indicative)

CFDs are leveraged instruments, but you don’t have to use the leverage

If you had, say, £10,000 to invest in the stock market, you could deposit that amount into a share dealing account and purchase shares in a company. You would pay commission to open the position, 0.5% in stamp duty and the full £10,000 will be tied up in your chosen shares with any profit or loss based on that exposure. The same £10,000 worth of exposure can be secured with a CFD for a fraction of the initial outlay thanks to leverage, with the risk and reward the same as if £10,000 worth of traditional shares were held. But should you not be interested in leverage, you can always treat CFDs like shares. Simply deposit £10,000 into a CFD trading account and take the equivalent CFD position which will tie up just £500 (note that overnight financing costs will still apply). The remaining £9,500 is not tied up, so you can use some of that to take advantage of another short-term opportunity elsewhere, or simply leave it on the account to support any losses. Best of all, using a CFD means you pay no stamp duty!

What’s your view?

Think shares will rise? Take a long position by buying CFDs (buy low, aiming to sell high). Think they’ll fall? Take a short position by selling CFDs (sell high, aiming to buy low). For a more detailed rundown of CFDs, their mechanics, associated costs and some trading scenarios download our ‘Comprehensive Guide to CFDs’ here.

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