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Comment: Bojo's Brexit will bring a wet nappy bounce

PA
PA

Nigel Farage accidentally got something right today.

Interviewed on the BBC, he pointed out that Boris Johnson’s Brexit brings us none of the certainty he claims. Rather, he said, it will trigger years of wrangling over what our future relationship with Europe means.

Where he’s wrong, of course, is that his solution, a hard Brexit with no extension to the transition period, would be even worse.

But leaving that aside, if Boris wins by the majority the polls are suggesting, and he gets through his Brexit deal, the markets will have what I intend to call the wet-nappy bounce.

All that pent-up desire to invest that has been held back since the referendum will be released, creating a lovely warm feeling. The pound and sterling-earning share prices will rise. Prophecies of a rush of foreign investment will be legion, boosting property prices. Happy days.

But then, the truth will dawn that Brexit is far more complicated than Johnson has promised, and that it could be another 10 years before we get real certainty about our future trading relations.

Foreign investment will not pour in as promised. Rallies will turn into falls. The nappy will turn decidedly chilly.

As one veteran trader explained the other day, of all the assets he’d consider backing, the most appealing is the FTSE-Vix volatility index. This tracks the likely extent of the market’s ups and downs in 30, 60, 90, 180 and 360 days. Having started the year at 22.1 points, it’s currently near its low at 10.96. Expect to see it fly as the wet nappy bounce goes cold.

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