Mizuho: Hard Brexit Will Be Hard To Avoid

Monday saw Mizuho note that "the political will and appetite in the UK has shifted in favour of a hard Brexit, and with the pandemic re-emerging this result will now be very difficult to avoid. With the progress that the EU has made in becoming a feasible currency area, EUR/GBP fair value now sits at parity, while Brexit weakness could force the rate even higher. Through the pandemic's consequences, UK underperformance through Brexit uncertainty, and a weakening currency, the FTSE100 should outperform the FTSE250, which looks rich by contrast. BoE easing (QE expansion in Nov) will allow Gilts to outperform swaps, driving the swap spread wider. Meanwhile credit spreads should stay fairly tight, but we highlight SONIA/LIBOR basis as a cheap hedge of spread widening risks. As a result, we add long EUR/GBP, FTSE100 vs FTSE250, a 10Y Gilt ASW spread widener and a 2Y SONIA/LIBOR widener to our model portfolio."