Market Overview

May's Brexit Plan Defeated: Here Are The Markets' Winners & Losers

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In a resounding defeat, British Prime Minister Theresa May's Brexit deal was voted down by the parliament. British lawmakers voted 432-202 against May's proposed withdrawal from the European Union. Nearly 118 rebel Conservative MPs voted against the proposal on grounds of being weak, lending an upper hand to the EU.

This was the biggest defeat suffered by a Prime Minister in modern history and opposition leader Jeremy Corbyn immediately called for a motion of no-confidence in the government, calling for May to step down. But no matter which party holds power, the EU has said that they won't change their stance, which now makes any kind of a deal next to impossible.

Some may argue that May still has three working days to map out a new plan of action. However, the size of the defeat makes it difficult for May to tweak the deal and change the mindset of the lawmakers, eventually raising the possibility of a no-deal Brexit in the near term.

Here's a summary of some of the sectors and stocks in the United Kingdom that are gaining and losing from May's big Brexit deal loss.

Pound Gains Rather Surprisingly

The British pound's reaction toward May's defeat was rather perplexing. The pound traded at $1.2881 versus the U.S. dollar on Tuesday, compared with $1.2866 late Monday. Maybe traders are expecting an extension of Article 50 (which is the legal means by which a country leaves the Union) deadline, which resulted in a stronger pound.

Nonetheless, the pound's strengthening against the U.S. dollar hasn't gone down well with U.K.'s large caps, like oil majors and pharmaceutical bigwigs, as it makes their exports more expensive. Meanwhile, firms that generate most of their revenues domestically and are more influenced by the U.K.'s current high economic growth are the biggest beneficiaries.

Banks See Mixed Outcome

International banks like Barclays Plc (NYSE: BCS) saw its shares lose 0.5 percnet due to currency impact. Meanwhile, domestically-focused institutions like Lloyds Banking Group plc (NYSE: LYG) breathed a sigh of relief as sterling is treaded higher.

Fundamentals are much better for British lenders compared to their more global counterparts. Deutsche Bank analysts have opined that investors should prefer U.K.-exposed names to more international firms such as HSBC Holdings plc (NYSE: HSBC).

Chance Of No-Deal Exit Bleeds Consumer Discretionary

The prospect of the U.K. crashing out of the EU without a deal, will eventually lead to a drop in pound and higher inflation. This in turn will squeeze the real wage and reduce consumer spending, something that doesn't bode well for retailers. A weaker pound, by the way, also leads to higher import cost for retailers.

Thus, the no-deal Brexit will adversely impact retailers like Next Plc (OTC: NXGPY) and Marks & Spencer Group Plc (OTC: MAKSY) at a time when they are already grappling with the encroachment of online players like Amazon.com, Inc. (NASDAQ: AMZN).

The U.K. imports almost half of what it consumes. And most of the food and agricultural products are imported from the EU. Thus, lack of a smooth deal would lead to an increase in agricultural import prices, and will dent the margins of producers and grocers.

Carmakers have urged both the United Kingdom and EU to seal a deal to prevent production disruption. This Brexit deal uncertainty will surely distress carmakers. Meanwhile, Britain's biggest commercial broadcasters have cautioned that revenues will decline.

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The preceding article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.

Posted-In: Brexit contributor contributorsNews Eurozone Global Markets

 

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