One thing is clear from the behaviour of UK markets this week: investors are eternal optimists.
Early on Wednesday, after a bruising few days, the pound suddenly popped higher, driven at first by news that some Conservative MPs might refuse to back a no-deal Brexit in an election and later helped by a report suggesting that the EU might be willing to make concessions on the question of the Irish border.
The latter of those was swiftly pooh-poohed by the EU and by Northern Ireland’s Democratic Unionist party. How seriously you take the former depends on how much you believe in recalcitrant Tory MPs.
The result, for markets at least, was that the pound quickly fell back to earth, dropping the best part of a cent back to $1.22, making this a rally that was well over by lunchtime.
But let us be clear: at or around that level, a no-deal Brexit is nowhere close to being priced in. The assumption remains that the UK will balk at the very last minute. News, or hints of news, that suggest a deal can be found are still seized upon as a trigger for sterling gains, even after all the noise of the past three years.
Late last week, Goldman Sachs recommended buying the pound with a view to it striking $1.30, judging that the UK government’s new Brexit proposals at least form the basis for serious discussions. Since then, the pound has fallen 1 per cent. The stop-loss limit, or point at which the bank would give up on this forecast, is $1.19.
If no deal emerges, the pound stands to lose another 10 per cent, MSCI estimated this week, adding that it could gain 8 per cent if a breakthrough were found.
It is not only UK markets that are at risk here. MSCI also reckons that the euro would take a hit of 5 per cent against the dollar if the Brits leap into the unknown. German stocks would also lose 5 per cent, it estimates. US stocks, 3 per cent.
Given the other threats to global markets right now — the age of the cycle, the suspicion that central bankers are running out of ideas, the capricious nature of Donald Trump’s approach to trade and geopolitics — it is not too hard to imagine that Brexit could turn out to be a big shock not just to UK assets in the coming weeks, but to the rest of the world, too. The assumption that this is a little island problem with no global ramifications is at best hopeful and at worst foolish.
A speech by Federal Reserve chairman Jay Powell this week was mostly scrutinised for its approach to short-term US lending markets, and understandably so. But another section sticks out: when discussing risks to the global outlook, Mr Powell first pointed to trade wars. Second on his list: Brexit.