Speculation over deal-or-no-deal, series of cabinet resignations and a no-confidence vote finally compelled U.K. Prime Minister Theresa May and her cabinet to approve a Brexit deal with the European Union (EU). It was undoubtedly a hard-fought victory as the cabinet was split, with some of the ministers opposing the agreement.
Bitter battles and possibility of further market gyrations, however, lie ahead. After all, the draft will now head to a Brussels summit where it will get the approval of EU leaders before getting back to the House of Commons, likely by the end of this year. The U.K. is set to leave the EU on Mar 29, 2019.
Nonetheless, breaking the impasse with her cabinet members was a big step forward, and the pound’s recent rally reflects that. The pound traded at $1.3054 versus the U.S. dollar on Nov 14, up 0.6% from its level late Tuesday. It has been quite a volatile trading session for the pound, which was at an intraday low of $1.2879 before climbing to the $1.30 mark. Meanwhile, the ICE Dollar Index, which measures the U.S. currency against a basket of six major rivals, slipped 0.2% at 96.80.
However, the pound strength 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. The FTSE 100 is also down, as its combined revenue is either earned in dollars or dollar linked currencies.
Meanwhile, firms that generate most of their revenues domestically and are more influenced by the U.K.’s current two-year high economic growth are the biggest beneficiaries.
Here’s a summary of some of the sectors and stocks in the United Kingdom that are gaining and losing from May’s withdrawal pact with the EU —
Banks See Mixed Outcome
Following the Brexit breakthrough, FTSE’s gauge of U.K. bank stocks fell nearly 1% in early trading, but a closer look will give you a different story. International players like Barclays Plc (BCS - Free Report) saw its shares lose 1.6% due to currency impact.
Meanwhile, domestically-focused institutions like Lloyds Banking Group plc (LYG - Free Report) should now breathe a sigh of relief. After all, such banks would have been affected the most in case of any economic downturn owing to a no-Brexit deal.
Newer firms like Metro Bank Plc and Virgin Money-owner CYBG Plc, in the meantime, saw their shares move north as they vie with international players.
Home Builders Gain
Rumors about the Brexit deal has been weighing on homebuilder stocks for quite some time now. But, now firms that build houses are among the best performers in the U.K., predominantly due to the Brexit breakthrough.
This has surely helped outweigh concerns that have been plaguing homebuilders like lack of affordability and the inability to save for a deposit. Notably, shares of B&Q-owner Kingfisher plc (KGFHY - Free Report) rose 2.9%.
Drop in Oil Prices Saves Airlines
The International Air Transport Association had expected Brexit to be a big setback for airlines. Needless to say, it will affect landing rights, pilot licenses and the trade of aircraft parts across borders.
But, the recent slump in oil prices helped British airlines stay afloat and defy Brexit. Oil recently saw its deepest plunge in more than three years in the international market, as fears of oversupply and a weakening demand outlook weighed on the market. Shares of Ryanair Holdings plc (RYAAY - Free Report) , which provides scheduled-passenger airline services in Ireland, the United Kingdom, and Other European countries, gained 0.3%.
Retailers & Car-Parts Manufacturers Rev Up
The prospect of the U.K. crashing out of the EU without a deal and a subsequent drop in pound may have resulted in higher inflation. This in turn could have squeezed the real wage and reduced consumer spending, something that doesn’t bode well with retailers. A weaker pound, by the way, also leads to higher import cost for retailers.
Thus, the Brexit deal helped retailers like Next Plc (NXGPY - Free Report) and Marks & Spencer Group Plc (MAKSY - Free Report) gain ground at a time when they are grappling with the encroachment of online retailers like Amazon.com, Inc. (AMZN - Free Report) .
Carmakers like Peugeot Sa (PUGOY - Free Report) and Citroen producer PSA Group, in the meantime, have urged both the United Kingdom and EU to seal a deal to prevent production disruption. This breakthrough now will surely help carmakers in the near term.
Food Makers Rejoice, Media Sector Bleeds
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 have led to an increase in agricultural import prices, and eat into the margins of producers and grocers.
Thanks to the Brexit deal, suppliers of ingredients and pre-prepared food such as Kerry Group plc will now have a better profit margin. The same cannot be said about media and telecom giants. Meanwhile, Britain’s biggest free-to-air commercial broadcaster, ITV Plc has cautioned that revenues will start to fall, irrespective of a good or bad Brexit deal.
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