If the market hates uncertainty, how does it react when there is clarity on events? Theresa May’s Brexit speech on Tuesday (17 January) saw the pound rally and the FTSE 100 decline in value. Surprised?

One might have thought the opposite movement would have happened, given the Brexit vote was the cause of 2016’s sharp decline in the pound and big advance in the blue chip stock index.

The tough stance towards Brexit in May’s speech should have, theoretically, reaffirmed that the UK is going to go through several years of pain while it tries to secure new trade agreements.

Economic threat still intact

In the interim period, consumers could experience a higher cost of living and potentially a tighter jobs market while international businesses reassess their commitment to the UK. Inflation is likely to keep rising.

As such, many would have expected May’s ‘hard Brexit’ speech to send the pound down and FTSE 100 up in reflection of its large proportion of overseas earnings. That didn’t happen. The pound jumped 2.5% and the FTSE 100 eased back 0.9% during and just after the speech.

You can see from the accompanying chart just how interlinked the currency and the blue chip index have been since the Brexit vote last summer. When one goes up, the other goes down – and vice versa.

Why did the pound rise?

The Prime Minister’s speech was received positively by the currency market as we finally got confirmation on the Government’s strategy for leaving the EU. Some may not like the plan to leave the single market, but certainty is surely better than indecision when it comes to stock markets.

Take a step back. May hasn’t given too much new information. She’s simply said we will leave the single market and the customs union.

That is not a reason to turn bullish on the pound. We don’t know how the new trade deals will play out – and certainly don’t know how long it will take to secure them.

Sorry, uncertainty remains

Sadly the only certainty from May’s speech is that we are still in period of uncertainty.

The Prime Minister said we won’t have a running commentary on Brexit negotiations. Therefore one should expect media and market speculation to rear its ugly head in the future and cause stock market volatility.

Let’s not forget Mr Trump officially becomes President of the United States tomorrow (20 Jan). His wildly unpredictable nature could make matters even worse.

I’d keep a wad of cash at the ready to go bargain hunting when we get the next market correction. It could come sooner than you think.

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