European Commission President Jean-Claude Juncker walks alongside British Prime Minister Boris Johnson prior to a Sept. 16 meeting at a restaurant in Luxembourg.
Markets are pricing in an increased chance of Britain reaching a deal with the European Union to exit the region in an agreed manner by the end of the month, even if it’s not immediately obvious how such a deal could come off.
Economists at Goldman Sachs say there’s a 60% chance of a Brexit deal, so the bank’s strategists examined what would happen to U.K. financial assets in such a scenario.
The pound GBPUSD, +0.2360% , they say, would push the pound to $1.30, versus $1.2319 on Monday.
It would also be a boost for U.K.-listed companies exposed to the domestic market vs. the broader internationally-oriented FTSE 100. The Goldman team found each one-percentage-point rise in sterling translates into a a one-percentage-point outperformance of its basket of U.K. domestic stocks relative to the FTSE 100 UKX, -0.01% .
The FTSE 100’s sales exposure to the U.K. was just 26% in 2017, compared with 51% for the midcap FTSE 250 MCX, -0.15% .
There would be a broader tailwind, too. Goldman’s economists say that by the end of 2020 a quarter of the cumulative GDP shortfall associated with the Brexit vote could be reversed with an agreed deal.
The FTSE 100 had a quiet end to the quarter, as it dropped 0.03% to 7424.30.
One decliner was the hospitality group Whitbread WTB, -3.65% , which dropped 5% on a Barclays downgrade to equal-weight from overweight. Calling the investment case for Whitbread WTB, -3.65% “muddled,” Barclays downgraded its estimate of revenue per available room for the Premier Inn operator to a 5% decline from a 3.5% decline.
“Next year is fraught with uncertainty. We see RevPAR anywhere from [down 6% to up 6%] depending on the Brexit outcome with the RevPAR flow-through to EBIT [at an estimated €13 million, or about 3.5% EPS] for every 1% change,” Barclays said.