May Losing Grip

Brexit Breakdown

Last night the House of Commons descended into chaos once more but as we’ve seen before in these late sessions, the writing was already on the wall when the DUP announced they would not be supporting May’s vote. It was quickly evident May would not be getting the required backing for MV3 and as such the third vote to get her Brexit bill passed was cancelled. Let’s remind ourselves where we currently sit. The EU offered the UK a short extension on the basis May could get MV3 passed, that currently looks even further form happening and personally I’m taking that option off the table. That leaves the offer of a far longer extension for the UK, and whether that means Article 50 is completely revoked, or the public are sent back to the polling stations – this remains a disastrous outcome, there will be uproar. The default after that is no deal. I cannot hammer this point home enough. It is pure and utter delusion to think at this stage there are other options open. Any politician trying to garner favour suggesting they can do anything else is simply pandering their own ego and serving their very own agenda.

UK Parliament Take Control

The fact is it would appear the Brexit process is now out of May’s hands and into the hands of these many politicians all looking to serve different means. The Letwin amendment voted through last night allows parliament to take control of the Brexit vote and hold votes on Brexit options. One junior minister resigned in the wake and while GBP was initially firmer, it has since weakened this morning as the realisation that this leaves the UK completely rudderless. The fact is parliament votes are very much likely to get refused by the EU, they are not going to just suddenly shift tact, and they have been crystal clear from the beginning. The only other way of hope was the suggestion that May will stand down should her deal get voted through but I’m failing to see how that addresses the problem.  GBP remains exposed, sterling pairs have been trading in relatively tight ranges thus far this week but one thing that has been dropping is GBPUSD risk reversals suggesting markets are ramping up purchasing of protection on GBP weakness.

Global Growth Concerns Growing

We’ve been sounding some concern on the US economy in recent weeks, or at least questioning the positive description used by the Fed all the while downgrading growth and ruling out further rate cuts. Equity markets failed to react to the signal that there would be no more rate cuts this year and the broader feeling is that something is simmering. Our Consulting Team wrote about the inversion of US treasury yields yesterday (check it out on our Linkedin page), where the US 10 year yield fell below the 3 month reading. This has often been used as an advanced indicator for recession, something we spoke about yesterday, but there are other signs of concern. It’s not just the US under the spotlight, its global growth as a whole and with data slipping lower across major economies, with particular focus on manufacturing, we may be entering a larger period of risk aversion. The bigger question we have is what do central banks have in their armouries to ease further if required? In recent months we’ve noted the ECB’s dovish tone, the BoE standing by ready to react to Brexit, BoJ maintaining their long term loose policy and of course the Fed scaling back their rate hike expectations. We are light on data today, French GDP was modestly firmer than expected for Q4 at 1% while later through the day we have several Fed speakers and US consumer confidence this afternoon.

Some Level in Majors

EURUSD spike higher last week turned out to be a false breakout, the spike above downtrend resistance was quickly recovered with EURUSD dropping back below 1.1300. For now we still look at the larger range with any rally above 1.1400 likely to run into some sellers, while support tends to be found on any break below 1.1300, stronger levels towards 1.1270. EURGBP still holding in its new lower range as well, it would still appear rallies above .8700 will find resistance for now unless sterling demand evaporates from the market, while euro buyers become active any drop below .8530.

GBPUSD 1.3000 up to 1.3300 remains the big figure range we’ve seen slight breakout outs either side since mid-February but for the most part its held firm.