欧洲-投资策略-固定收益与经济：英国退欧终局

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1、August8,201804:00AMGMT18FixedIncomeandEconomicsMORGANSTANLEY&CO.INTERNATIONALPLC+AndrewSheetsSTRATEGIST18TradingtheBrexitEndgameSeveralUK-relatedriskeventsareconcentratedinthecomingmonths.Webuy3mGBPUSDputsasatailriskhedgebutseeGBPrisingin2019.WearelongUK10-yeargilts.Trickyend

2、game,softoutcome:OureconomistsexpectaperiodofheightenedUKpoliticaluncertaintyin2H18,reflectingdomesticdivisionsoverEurope.However,theyalsoexpectasoftBrexitintheend,alongthelinesoftheUK'srecentproposals.TheythinkthattheproposalscanbemadeacceptabletotheEU,withtheUKacceptingacomm

3、onrulebook,commonpoliciesand–intheend–acommoncourtforgoods,andtheybroadlyreflectUKpoliticalpreferences,whichfavourfreetradewithEuropebutnotfreemovement.Thisreportconsidersmarketreactionsandprobabilities.Thetrades:ThewindowfortradingGBPweaknessisbecomingshorterastheendoftheBrex

4、itnegotiationsgetsnearer.Weproposeatradetoactasahedgeshouldtheinternalpoliticaluncertaintypickup.Webuya3mGBPUSDatthemoney(ATM)putat1.65%.Front-endGBPvolatilityhasalreadycomedown,makingoutrightputsattractiveversustradingforwardvolatility.ThetradebenefitsfromUKuncertaintyremaini

5、nghighforthecomingmonthsbutalsoifglobalvolatilityrisesfromequitymarketweakness.Weseethisasashort-termtradeastheconclusionofanytradenegotiationsbyearly2019shouldcauseGBPtostrengthenandlong-termvolatilitytocomedown.Wetarget1.50onGBPUSDbyend-2019.Ratesmarketsshouldstaysupportedth

6、roughouttheperiodofuncertainty,especiallygiventheMPC'snewcapacitytocutrates,andwearelongthe10-yearpointintheUK.Thetimeline:Tradersshouldfocusonthreetypesofevents–negotiations18betweentheUKandtheEU,internalUKgovernmentdiscussions(overBrexitpolicy)andBankofEnglanddecisions.Inth

7、isreportweprovideadetailedtimelinebutnotetwoperiodsofuncertainty–aroundtheOctober18-19specialEUcouncilmeetingandlateDecember/earlyJanuarywhentheUKparliamenthastovoteonthefinaldeal.InthisreportweoutlinealltheeventsintheUKandtherisksaroundthem.J18WhyandhowtopositioninGBPvolatil

8、ityAndrewSheets,PhanikiranNaraparaju,SheenaShahExhibit1:Overv