Against the odds, Boris Johnson’s UK government appears to have agreed to a deal in principle with the European Union (EU) which could see the United Kingdom leave the EU on October 31 in an orderly way. But David Zahn, our Head of European Fixed Income, cautions against popping the champagne corks too prematurely. There’s still a lot of work to be done, and financial market volatility is likely to remain heightened, he says.

Winston Churchill’s famous aphorism: “This is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning.” Seems very apt today.

Against the odds, the European Union (EU) appears to have accepted the UK government’s revised Brexit proposals.

There remains a big question mark over whether UK Prime Minister Boris Johnson can secure Parliamentary approval for his new agreement. If he can edge a victory in the House of Commons, Johnson could be on course to deliver on his promise of taking the United Kingdom out of the EU on October 31.

But in Churchill’s words—appropriately delivered almost exactly 77 years ago—this is not the end. Consideration now shifts to how the two sides can negotiate a trade agreement over the next two years.

Financial Market Reaction

As active investors, we’ll be keeping a close eye on the financial market reaction. In the short term, we expect sterling should likely rally and gilt yields rise.

But markets are likely to remain very volatile. The ability to adjust portfolios quickly to react to changes in the market is likely to be important for active investors.