Chances of Brexit trade deal narrow for banks and bookmakers

Investment banks cut the chances of Britain and the European Union agreeing a post-Brexit trade deal on Thursday while bookmakers slashed the odds to 50% after leaders failed to break an impasse in talks.

British Prime Minister Boris Johnson and European Commission President Ursula von der Leyen met on Wednesday to try to break the deadlock, but said significant gaps remained and set a Sunday deadline to decide on their next steps.

JPMorgan (NYSE:JPM) reduced the chances of a trade deal to 60% from 66% and said the probability could fall below 50% if progress is not made soon. Citi warned that the chances of a deal have fallen materially, although it still thinks one is more likely.

JPMorgan analyst Malcolm Barr said deadlines have come and gone before and negotiations could continue beyond Sunday.

“But the need to make preparations for the regime shift of ‘no deal’ is pressing, and taking such actions alongside the talks increases the sense that the two sides would be ‘going through the motions’ rather than being committed to concluding a deal,” Barr said in a note to clients.

“In the absence of significant progress toward an agreement by the end of the weekend, the odds of a deal will fall below 50%,” JPMorgan’s Barr added.

Rabobank cut the chances of a deal to 60% from 70%.

An underlying confidence among banks that, on balance, Brussels and London will reach a deal on trading relations from next year contrasts with a much more cautious betting market.

Paddy Power and Betfair are offering odds with a 50% probability of a no-deal, a jump from a 33% on Wednesday.

The odds of no-deal have also risen to 58% on betting exchange Smarkets, up sharply from the 19% priced in last week.

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