Brexit sentiment falls as the country is left reeling by Manchester bombing

The Brexit Senitment Index fell today as markets and investors wince following the bombing in Manchester on Monday evening.

Prime minister Theresa May has raised the UK’s terror threat level to its highest level of critical for the first time since July 2007.

The critical level means that the government and security services believe “not only that an attack remains highly likely but a further attack may be imminent”.

May’s backtrack over her social care plans have been seen by investors a short term embarrassment but not enough to cost her the election.

The Index dropped by 0.05 points this morning.

Analysis from Financial Orbit‘s Chris Bailey

What a difference a few months make.

Back at the start of this year investors were falling over pessimistic predictions concerning the future of Europe. Populists were poised to take important European political offices, the dollar was set to romp forward driven by the power of President Trump’s policies and Brexit discussions were much more about risks rather than opportunities.

Fast forward to today and European equity inflows are at record levels and corporate earnings are being upgraded as mainstream politicians with a reforming message for electorates have prevailed in the Netherlands and France.

Meanwhile trade deals are being written and not ripped up between president Trump and the Chinese whilst in the world of Brexit, Theresa May’s masterstroke of calling an early election looks set to deliver an enhanced Conservative majority and the secondary benefit of entrenching a soft Brexit replete with plenty of transitional arrangements of three, four or five years.

Even the governor of the Bank of England was moved enough yesterday to forecast an upcoming time of improving after inflation consumer incomes in the near future.

Package all this together and underlying investor sentiment has not only improved but has fed positively on itself — as is the norm in a nascent bull market.

PMI metrics have persisted above the 50 neutral level leading to talk — nicely side-stepped by the aforementioned governor of the Bank of England in his most recent comments — of the era of a higher interest rates epoch edging closer across Europe as economies normalise.

This signalling of better times ahead have helped pull the previous struggling Pound and euro up against the 2016 all-conquering US dollar.

The reality however is that everything may not be awesome but the backdrop remains opportunistic and this reflects embedded medium-term fear.

Brexit fears are still high across the polled electorate as only the negotiating structures are currently being discussed and all other commentary remains rhetoric centred only.

Meanwhile Europe’s nascent recovery follows a decade of economic growth and corporate earnings progression disappointment against the United States whilst reform hopes do not only need suitable voting by the French Parliament but also vocal financial support for broader pan-European ideals by the region’s paymasters Germany.

Overall i remain of an opportunistic mindset.

Concerns will ebb and flow given the fledgling nature of Brexit discussions and European reform hopes. Buying grinding fear and selling extreme enthusiasm remains the investors best defence to any uncertainty.

Tracking sentiment shifts has rarely been as important.

The latest monthly data used by the tracker has been mixed.

While UK sectors recorded increased activity in April, consumer confidence slipped.

Zoe Mills, retail analyst at GlobalData said:

Consumers predict their finances will worsen over the next six months, which has pulled down overall confidence in the UK’s future. This lack of confidence will continue as rising food prices stretch disposable incomes – primarily because consumers are increasingly concerned with food quality and unwilling to trade down, despite improvements from supermarkets on own-brand ranges.

After the long road to Brexit has finally began with the triggering of Article 50 of the Lisbon Treaty — the formal clause to begin leaving the European Union — British prime minister Theresa May has thrown another spanner in the works by calling an early general election.

May shocked everyone when she announced a snap general election to take place on 8 June — including markets. Sterling jumped to over $1.26 on the news.

The UK has two years to carry out negotiations with the EU to get the best deal for the UK and May wants a strong mandate from the British people that will give her the “strongest hand” in the negotiations and will make it hard for others to “frustrate” the process.

Over the past nine months markets and businesses have braced themselves for an economic storm that has yet to hit. But as negotiations between the UK and the EU get underway that could change.

Verdict has pulled together some key economic variables (including sector PMIs, FTSE indices, and currency movements) and combined it with GlobalData research in a weighted percentage.

The number, recalculated every day, is added to or subtracted from a pre-Brexit vote day base of 50.0. Any number above 50 implies positive business sentiment, any number below, suggests negative.

Questions about the calcuation, and suggestions on how it can be improved, to Verdict editor Billy Bambrough.

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