Anxiety, we are told, is one of the scourges of modern life, with newspapers and other outlets routinely publishing features with headlines such as: “Are we worrying ourselves to death?”
But the hardier breed of trader takes a positive view of this issue. They fear not anxiety but complacency. Constant fretting is a sign they have taken strong positions and are playing for significant stakes.
Anxiety is the centre of a trader’s nervous system. Far from worrying themselves to death, they prefer to think of worrying themselves to wealth.
Possible constitutional crisis
With the clock ticking on the Brexit countdown, such traders will have plenty of opportunity during the next 12 months to try out this theory under battle conditions. Indeed, you could argue that the pro-anxiety stance is facing its very own stress test, of the sort routinely conducted by regulators on banks and others since the financial crisis.
But the stresses will be coming from different directions as the months go by. At present, the sources of anxiety are the possibility of Britain leaving the European Union on 29 March with no deal agreed between London and Brussels and the fear that, even if a deal is hammered out, Parliament will reject it.
In turn, the sources of anxiety later in the year will derive from either an early verdict on the success or otherwise of the economy in a post-Brexit world or continuing political strife and uncertainty within the UK, while a year from now, assuming no long-running constitutional crisis, worries will relate to the future outlook for British business, its currency and its share indices.
Implications for sterling
All this without mentioning the potential for anxiety in relation to the impact on continental European economies and on their own share indices such as the DAX in Frankfurt, the Cac 40 in Paris and the AEX in Amsterdam, not to mention any effect on the euro.
Figuring out likely asset-price reactions looks like trying to play multi-dimensional chess. So, how to respond?
It is in the nature of uncertainty that any detailed trading strategies proposed are very likely to need revision as events unfold. That said, we can start with some very general principles as to likely market movements under various scenarios.
A no-deal Brexit would reverse this equation. More broadly, it would cast doubt on Britain’s general trade prospects and, by potentially making the UK a less attractive investment destination, reduce further the demand for the pound.
Conversely, the euro ought to benefit from no-deal, but this is far from certain. True, investment may be routed away from Britain and towards the continent, but a serious interruption in trade between the UK and EU would damp down the demand for euros from British importers.
If the implications for currencies are not always clear, that is doubly so when it comes to stock markets, and even more so in relation to the FTSE 100 index. This is because the majority of the earnings of FTSE companies are generated outside the UK, and even hardened investment professionals do not really know how the blue-chip index would react under various scenarios.
Traders will need to be light-footed in relation to the FTSE 100, ready to move in and out as circumstances suggest. By contrast, a no-deal Brexit will, in the short term at least, be likely to give a lift to continental exchanges, as traders and investors bet that their importance is likely to grow in relation to London.
All the anxiety they can handle
No, this isn’t particularly logical, as financial theory tells us that a market index ought to reflect sum of the health or otherwise of the companies that comprise it and not the prospects for the exchange in question. But logic does not always win out.
Heading into the future, the picture becomes even cloudier than it is now, but, again, certain principles are likely to hold. Should Britain be making a success of Brexit, leaving the EU amicably and seeking trade opportunities around the world, the pound will be supported and stock-market professionals will never need to worry about how the FTSE 100 would have reacted to a no-deal Brexit or ongoing constitutional crisis.
Those who live on their nerves and thrive on anxiety are in for a treat in the 12 months ahead. Such traders will be offered all the anxiety they can handle – and then some. Throughout, they will bear in mind that, without disruption and uncertainty, there would be little on which to trade, and that profits are to be made in the gaps between what most people expect and what actually happens.