Brexit Vote Uncertainty May Weigh on FTSE 100, Firms’ Exit Plans
FTSE 100 Talking Points:
- HSBC has delivered Brexit plans to investors as the bank prepares to mitigate the impact of the UK’s exit from the EU
- The company plans to shift 7 branches to its French subsidiary and roughly 1,000 employees
- A second Brexit referendum, or a delayed exit deadline, could alter the bank’s plans and create further uncertainty for the FTSE 100
Investors with exposure to the financial sector in the FTSE 100, particularly HSBC, will watch tomorrow’s Brexit proceedings keenly. Beyond the event’s impact on the British Pound and the broader FTSE 100, a change in the Brexit timeline could spark deeper uncertainty for firms who have concrete plans to shift operations to continental Europe.
HSBC Price Chart: 1 – Hour Time Frame (January 2019 – February 2019) (Chart 1)
In August 2018, HSBC announced plans to transfer seven of its branches from the United Kingdom to its French subsidiary and acquire two other branches under its French arm. While the bank fell short of naming Brexit explicitly, the French branch released a statement outlining the rationale. “As political and regulatory change in Europe continues, it is important that HSBC organizes its business in a way that supports its pan-European proposition for customers” the statement said. The move is slated to take place in Q1 2019, just as the United Kingdom is scheduled to leave the European Union.
With Brexit only 31 days away, HSBC’s proposed move looks primed to take place. However, with tomorrow’s Brexit vote the schedule could be altered as uncertainty mounts. Wednesday’s key debate in Parliament will cover the Kyle-Wilson amendment. The amendment states that MPs will support the Prime Minister’s deal, which has been agreed to by the EU, only if it is put to a second referendum.
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If passed, the vote would necessitate an extension of Article 50, a proposition the EU has been open to. The Article 50 extension would then allow a second vote to be put to the public, effectively allowing English nationals to vote directly on the Brexit terms secured by Theresa May. Such a development could throttle the plans of HSBC and other companies to reduce operations in the UK as the country could be in a state of flux for longer, or potentially remain in the EU.
FTSE 100 Price Chart: 1 - Hour Time Frame (December 2018 – February 2019) (Chart 2)
That said, the vote is largely expected to fail and thus May’s government will be locked between a rock and a hard place with time quickly dwindling. Alongside HSBC and the FTSE 100, look to increased volatility in the Pound as traders watch tomorrow’s vote unfold. The currency experienced a broad and substantive rally this past session. The FTSE 100 has traded slightly lower to the middle of the recent range etched out from February 8th. RSI is similarly average, slightly under 50.
--Written by Peter Hanks, Junior Analyst for DailyFX.com
Contact and follow Peter on Twitter @PeterHanksFX
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