Goldman Sachs: Attractive Levels After Latest Brexit Stumble

Goldman Sachs note that "on Wednesday the UK government introduced an Internal Market Bill, with a stated intention of protecting the integrity of UK-wide economic activity in the event that talks with the EU over a free trade agreement break down. However, the legislation violates aspects of the Brexit Withdrawal Agreement - an international treaty signed in January - and therefore has reopened the prospect of a more disorderly exit, including the potential of a hard border on the island of Ireland. For some time we have used targets for EUR/GBP of GBP0.87 for our base case "deal" scenario, and GBP1.00 for a disorderly "no deal" exit. Based on those estimates, the market is currently pricing a 40-45% chance of the "no deal" outcome. We have low confidence on how the debate around the legislation will evolve in the coming days, and those odds could rise further if the attempted Tory rebellion fizzles out. But beyond the very short-term we would see meaningfully lower odds of a "no deal" Brexit than the market appears to be implying - the outcome would be damaging to the UK economy, and the Johnson government has used similar negotiating tactics before. For investors willing to look through some near-term volatility, current levels for Sterling longs now look attractive, in our view."