LONDON — The Brexit referendum in June offered a simple yes or no choice, but the reality of leaving the European Union is not so simple.
There are lots of different potential Brexit outcomes, with various levels of trade and customs deals, and it is not always easy to work out where on the spectrum we are.
Luckily, analysts at Nomura have compiled a handy chart.
Nomura analyst Jordan Rochester said: “While ‘Hard vs Soft’ has become the standard classification of Brexit, it lacks nuance as there are key differences for the UK and asset prices. Instead, we prefer to use a five-level system with clear definitions of Soft (Level 1, EEA membership) to Hard (Level 5, No deal WTO cliff edge).”
“Currently, we would say that the market is somewhere between levels three (concessional deal with limited single market access) and four (Bare bones FTA) and is likely to continue to hover between the two for the time being.”
Here is the chart:
“Once the actual negotiations get underway, there may be certain flashpoints that catch the markets’ attention, be it a walkout from either side during dinner talks or strongly worded political speeches,” Rochester said. “These will likely prove to be short-term negotiation tactics rather than a sign of the final outcome, albeit the market will price along the Brexit spectrum as appropriate, allowing for tactical trading along the way.”
The tone between the UK and EU has been combative in the early days of the talks. The two sides have failed to even agree on the order in which deals on the status of EU nationals in the UK, the level of the so-called divorce payment calculated at around €100 billion and the Northern Irish border should be approached.
On Sunday, the UK’s Brexit minister, David Davis, said the structure of the timetable of the negotiations will be the “row of the summer,” according to a report in the Financial Times.
“How on earth do you resolve the issue of the border with Northern Ireland and the Republic of Ireland unless you know what our general borders policy is, what the customs agreement is, what our trade agreement is?” Davis said.
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