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Cross-Asset Weekly

Brexit clouds are lifting

Basel, 15.03.2019
Sterling rallied this week as a series of votes in the House of Commons regarding the UK’s withdrawal from the EU appears to have taken hard Brexit off the table. With the UK set to request an extension of Article 50, uncertainty still remains about what the eventual outcome of Brexit will be, and Prime Minister May looks set to put her muchmaligned deal to MPs for a third time next week. At the margin at least, the chances of that deal passing have increased since Eurosceptics may decide that any Brexit is better than no Brexit. Whatever the outcome of that vote, though, it seems clear that the UK inching towards some form of orderly Brexit – or even remain – which would improve the outlook for investment and the UK economy as a whole. Accordingly, there could be upside surprises in the Pound and Gilt yields in the second half of this year.
Despite some pullback in recent weeks, the outlook for Emerging Market (EM) local currency government bonds is positive. Nonetheless, investors should be highly selective, avoiding near-term political risks in major EMs such as Argentina, Brazil, India and South Africa, instead concentrating on other countries including Mexico and Russia where fundamentals are better.
We recommend overweighting the information technology (IT) sector in an equity portfolio. We prefer software companies and payment services operators among IT services, as both industries enjoy elevated margins and superior growth prospects.

This week’s highlights

European Macro
Brexit – twice bitten and still not shy

Global Technology
Heading for the cloud and payment services

Emerging Markets
Investors should remain selective in local currency bonds

Economic Calendar
Week of 18/03 – 22/03/2019

Market Performance
Global Markets in Local Currencies

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Further information
Dr. Karsten Junius, CFA  |  Chief Economist

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