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Strategist Explains the Best Way to Trade a Brexit Deal — Whatever the Outcome

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LONDON — A strategist at BNY Mellon has explained how he plans to trade both U.K. stocks and currencies, whether or not there is a Brexit deal.

Geoffrey Yu, senior EMEA market strategist at the investment bank, was talking to CNBC as Brexit trade talks reached a crunch point after months of failed negotiations.

The deadline for the U.K. and EU to reach a trade deal is the end of this year, but as talks continued on Monday afternoon, an agreement remained elusive on three key issues: fisheries, competition rules and governance of the potential deal.

Regardless of whether there's a deal BNY Mellon's Yu said there were opportunities in both U.K. stocks and sterling.

"If you believe the FTSE 100 is going to be more intertwined with the global cycle, and if we are going to global reflation, then irrespective of what happens to Brexit then the cyclical names in the FTSE 100 — they should actually do well," he told CNBC's "Squawk Box Europe" on Monday.

Cyclical stocks are directly linked to the economy, and so tend to do well when an economy is growing.

With regards to currencies, Yu said his position would be to "try to fade sterling strength" regardless of whether the U.K. and E.U. reached a deal. Fading is when a trader does the opposite to what the rest of the market is doing, for example by buying a currency when the price is falling.

"The difference is, if there is going to be a deal, then the level at which you fade sterling strength is probably going to be higher, because there's going to be more of a premium. But right now, relative value trades being underweight — sterling against Asian currencies (such as) CNH (Chinese yuan renminbi), Korean won, Taiwan dollar — I think these are the trades that are live right now irrespective of what happens to Brexit."

Sterling has risen around 1.5% against the dollar over the last month; by comparison, it's 0.3% higher against the yuan.

Yu added that markets were unlikely to be affected by the outcome of the Brexit trade talks, given the massive impact of the coronavirus outbreak.

"People do believe that when your economy is going to be down double digits anyway this year given the pandemic, then what's a few single digits in terms of GDP attributable to no deal? And especially if that loss is going to be spread out over a couple of years," he said.

"And second, I think the market just seems to have moved on — if you're a business, if you've been able to prepare for a deal or a no deal, then again the impact is going to be limited."

  • CNBC's Silvia Amaro contributed to this report
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