Dubai: It will be a tale of two cities in equities markets this week, analysts believe, as London prepares for Brexit while Wall Street eyes new highs.
In the United States, both the S&P 500 and Nasdaq indices are in the best of times as they inch close to their all-time highs, while in the United Kingdom, investors are seeing the worst of Brexit as uncertainty continues over whether the exit will be delayed or not.
The uncertainty in the UK comes after Prime Minister Boris Johnson on Saturday asked the European Union to delay Brexit, following a vote to do so by Parliament, but sent a second letter arguing against a delay.
He said that the UK now faces either a delay in Brexit from its October 31 deadline, or a small concession from Johnson to appeal to members of Parliament who voted for a delay.
“I still believe it’s possible for the UK to leave on October 31, but the clock is ticking. These kinds of decision usually happen in the last minute,” said Charles-Henry Monchau, managing director for investment management at Al Mal Capital.
In that case, sterling could find some support, especially considering that it is already undervalued. The currency is now trading at $1.2984, and Monchau says he believes it should be between $1.3 and $1.4,
“The worst thing for the pound is the uncertainty, so whatever happens for the UK now, at least there’s a light at the end of the tunnel,” he said.
Han Tan, market analyst at FXTM, pointed that from the technical side, news on a deal passing could push the sterling “well above” $1.30, while negative news could bring the $1.22 support level in focus.
In the US, many listed companies are expected to be reporting their earnings this week, and if they exceed relatively-low expectations, that could trigger the main indices to push through to all-time highs.