October 24, 2019

For a brief moment on Tuesday, it looked like Brexit was finally done.

And just like that, the moment was gone.

After a long day debating PM Johnson’s Withdrawal Agreement Bill, the British parliament voted 329 to 299 in favor of backing it, which is more than the minimum 318 votes required. But the British leader’s timing—three days to get this into law—was too rushed for lawmakers and thus, they voted 322 to 308 against the timetable.

There is a way out given that the majority voted for the Bill. But more time is needed to ensure that there is no “accidental hard Brexit” between now and the end of the transition period. However, Prime Minister Johnson is wedded to the magical October 31 day and does not want to delay it. In fact, he told the EU not to offer another date. Frankly, he may not have a choice given the Benn Act, which states that if the EU offers an extension, then it is up to Parliament to accept or reject it. But the leader demanded an election if they do push out the departure date.

Now we wait to see what the EU decides, but it is expected that an extension will be granted to January 31, 2020. If that is the case, it goes back to the UK where it is likely Parliament will not only back the extension, but also support PM Johnson’s preference to hold a general election. This suggests an extension, then election, could be forthcoming in that order (assuming 2/3 of Parliament vote in favor of holding an election). And so back and forth we will go for the next few months, though our base case remains intact that a worst case, no-deal BREXIT scenario will be averted. From a market perspective, while European equities have outshined their U.S. counterparts recently, we remain underweight due to continued political uncertainty and associated economic malaise. 

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