PM Theresa May Likely to Push for Single-Market Access in Brexit Deal

Discussions around the June 23 Brexit have anything but subsided. The UK faces a dilemma: How to maintain single-market access without remaining part of the European Union? Brexiteers are more concerned with the UK managing its borders than anything else, and this is what drove 52% of Britons to vote in favour of a Brexit. However, as fate may have it, Prime Minister Theresa May will invariably pay the EU for access to the single market. This may be at odds with the wishes of Eurosceptics and Brexiteers, but it allows Britain to maintain strict control over its borders and judiciary. As it stands, the UK is part and parcel of the EU. This means that all EU passport holders (permanent residents and citizens) have the right to live, work and travel freely in any EU country. This policy has resulted in ‘open borders’.

According to those in the know, Prime Minister May’s cabinet will be pushing for a trade deal that maintains unfettered access to a single European market by paying billions of pounds in fees. This would give the City of London access to critical sectors of the EU economy. Among the many major concerns for the UK is the loss of strategic partnerships with Europe. A Brexit signals a severing of existing tax-free, duty-free trade agreements with EU companies. The collective bargaining power of the EU will no longer be available to the UK, thereby raising prices. This would invariably lead to inflationary pressures in the UK economy, coupled with a weaker pound. The passporting rights that the UK currently enjoys would be lost in the absence of another deal. The UK is working feverishly to protect existing relationships with international companies. One such operator is Nissan – the Japanese carmaker.

According to the Office for National Statistics (ONS), the UK paid approximately £7.1 billion to the EU per annum, for the 5 years between 2010 and 2014. Additionally, the cost of separation from the EU will be approximately €20 billion for the UK. In order to maintain access to the single market, Britain will likely have to continue paying billions of euros in annual contributions. This will probably take the form of funding European projects or funding European Union security arrangements. The financial sector is determined to safeguard as many passporting rights as possible, and is leaning on the government to act accordingly. Failing the provision of such agreements, financial institutions have threatened to abandon the UK in favour of safer jurisdictions. There are simply too many UK jobs at stake for the government not to make payments to the EU to protect British industry and international business. But there is no consensus between Brexiteers and the remain campaign about the nature of the post-Brexit blueprint.

Trading Opportunity #1: Gold Trading at $1,254.80 per ounce down $0.70

The gold price has been battered over the past 1 month. It is currently trading at $1,254.80 per ounce on the Comex. The 52-week trading range for gold is $1,052.60 on the low end and $1,384.40 on the high end. Over the past 30 days, gold has retreated by 4.04% or $52.70 per ounce. Over the past 6 months, the gold price has appreciated by a paltry 1.58%, or $19.50. Over the past 1 year, gold is up 5.8% or $69.50. The gold price is heavily influenced by Fed rate policy. With the November 2 FOMC meeting fast approaching, it is highly unlikely that the Fed will hike interest rates.

Gold typically performs well when the Fed avoids hiking interest rates. Since the precious metal is denominated in USD, a rate hike would make gold more expensive to overseas buyers and decrease its overall demand. This applies downward pressure on the gold price. The more likely outcome is a December 14 rate hike. Fortunately, gold has been given plenty of lead time to price in the impact of a rate hike. This means that the downward pressure on gold will be less acute. Gold is subject to volatility in the geopolitical arena. If the US presidential elections on November 8 result in a surprise victory for Donald Trump and Mike Pence, we are likely to see a rush on gold.

Trading Opportunity #2: Goldcorp Plunges

Goldcorp Inc. (NYSE: GG) is currently trading at $14.31 per share, down $0.34 or 2.32%. The stock has been battered in recent weeks, declining as much as 9.43% over the past 1 month. Over the past 3 months, the declines are even greater with a 25.82% depreciation. For the year-to-date, Goldcorp Inc. is up 23.79%. It started the year at $11.56 per share and is now trading approximately $3 higher. The 52-week high for the stock is $20.38, and the 52-week low is $9.46. The company has a market capitalisation of $12.25 billion and a -2.67 price/earnings ratio.

The performance of Goldcorp Inc., stock has been anything but consistent over time. Over the past 4 financial quarters, the stock has been largely bearish. In Q2 2016, estimated earnings were $0.02 and actual earnings came in at $-0.01. In Q1 2016, actual earnings of $0.09 were reported with estimated earnings at $0.04. In Q4 2015, estimated earnings were $0.01 per share are actual earnings of $-0.15 were reported. In Q3 2015, estimated earnings of $0.04 were reported with actual earnings of $-0.04. Fast forward to Q3 2016, and lofty estimates of $0.12 are expected.

Turning our attention to the recommendation trends for Goldcorp Inc., We can see that there is an even split between buy/strong buy and hold recommendations. On a rating scale of 1.0 (strong buy) to 5.0 (sell), the stock is rated at 2.5. The last upgrade of the stock was made by Deutsche Bank on 3 October 2016. The bank boosted its rating on the stock from a sell to a hold. On a positive front, GG recently acquired Kaminak Gold Corporation. This company is a hydrothermal gold mining operation which is situated in the Yukon. According to analysts, there are 3 million ounces of gold mineral resources available there.

Trading Opportunity #3: Bears Take on the GBP/USD Currency Pair

The GBP/USD currency pair is trading at 1.2159, down 0.22% or $0.0028. The pair has a 52-week trading range of $1.21 on the low end and $1.55 on the high end. For the year-to-date, the GBP/USD pair is down 17.49% after starting at 1.4738. Currency traders are concerned that the GBP/USD pair may revisit the flash crash 31-year lows, this week.From a technical perspective, the GBP/USD pair is struggling to breach the 20-day simple moving average indicator. It appears as if the currency pair is oversold, and if the pair continues to break lower than this 20-day moving average we will likely see the 1.21 handle being breached. This could lead to further losses for the GBP. As a binary options trader, this pair is trending bearish.

Trading Opportunity #4: FTSE 100 Index Plunges 0.58%

The FTSE 100 index is currently trading at 6975.14, down 0.55% or 38.41 point. The index has rallied by 9.36% for the year-to-date. At its current level, the FTSE 100 index is below the 25-day SMA (6985), but above the 25-day EMA (6940). The index hit a high of 7104.49 in October, and is currently trending bearish. The news that the UK may be moving towards billions of pounds in annual payments to the European Union is going to impact markets in a big way. The more important determinant of the FTSE 100 index is the GBP/USD relationship. A December 14 rate hike will strengthen the USD and further weaken the GBP/USD pair. This will reverse the current course of the FTSE 100 index.