As expected, PM Theresa May got support for her Brexit deal from the Cabinet. Theresa May said it was a 'collective' not a 'unanimous' decision, suggesting that some ministers were against.
The withdrawal text has also been released. On financial services, the UK and the EU will recognise each other's financial regulations, so some sort of equivalence, which the EU cannot pull out of overnight, according to Bloomberg. Banks would still lose a financial passport to the EU's internal market for financial services.
As anticipated, there will be a review mechanism, which before 1 July 2020 needs to determine whether an agreement on a permanent deal can avoid activating the backstop. Otherwise, the options are to either 1) activate the UK-wide backstop (the UK stays in the customs union including 'level playing field' conditions and Northern Ireland obeying many single market rules) or 2) extend the transition period for an unspecified period of time.
The UK cannot decide this itself, both sides need to agree. Also, if the UK wants to leave the customs backstop, it needs to be a joint decision with the EU. Still, the Withdrawal Agreement says that the ambition is still to sort things out in a permanent deal and that the intention of the withdrawal deal is that is should 'only apply temporarily'.
The real test is still whether it can pass the UK House of Commons. A date is expected to be held in mid-December (10 December has been reported). PM Theresa May needs support not only from the moderate Conservatives but also some Labour MPs.
Markets are still not getting overexcited just yet. One reason is that it seems like the hardliners in the Conservative Party may try to challenge Theresa May as party leader. Another reason why the GBP movement was limited was that the Cabinet support was expected and the real test is whether it can pass the House of Commons.
When we get more clarification in either direction, we expect to see bigger movements in GBP and until then GBP will stay volatile. We forecast 0.84 in 3M (NYSE:MMM) assuming the deal passes.
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