Another day, another threat for May
December 18, 2018
Another day, another threat to Theresa May. Yesterday, Jeremy Corbyn tabled a vote of no confidence in Theresa May, which was seen as a mere formality, and wasn’t given the time of day by the governing party as they claimed they had no time for “political games”. By batting the ball back into Labour’s court, May is forcing Corbyn to either simmer down and wait for the meaningful vote in mid-January or table a formal vote of no confidence in the government – the latter would see a snap election take place if it is supported by 2/3rds of MP’s. As of yet, the severity of the threat to May is minor, but with over 100 MP’s voting that they had no confidence in the Prime Minister, and with May unable to get any legally binding concessions from the EU, any attempt by Corbyn to topple the government will be regarded as highly credible. For now, May looks safe but pressure continues to mount. Calls for an “indicative vote” of MP’s to decide on the most viable option to go forward with Brexit are increasing, and should her deal fail the meaningful vote in January – which it was set to last week – these alternative options would likely materialise.
The single currency gained some ground against the dollar, after the Italian government made positive noises regarding bringing their proposed budget in line with European Union targets. Meanwhile, European Economic Commissioner Pierre Moscovici already seemed in a forgiving Christmas mood this morning as he talked about “working day and night” on making sure that Italy can carry out its plans. There was a slight miss in inflation data yesterday, coming in at 1.9% against a 2.0% forecast, which was in line with the picture painted by European Central Bank President Mario Draghi last week, with a slowdown in economic activity producing fewer inflation pressures. The pair may have also benefited from news flowing from the Brexit front, where political pressures keep increasing the likelihood of a no Brexit or soft Brexit scenario. Today in the calendar we have IFO Business Climate surveys on the German economy at 9:00 GMT.
Yesterday´s session saw the dollar underperform against most of the G10 currencies due to concerns ahead of the Federal Reserve interest rate announcement on Wednesday. Worries about the effects of hiking rates shook the equity markets as the S&P500, Dow Jones and Nasdaq indices fell by around 2% at the end of the trading session. Trump’s tweet questioning how the Fed is “even considering” a rate hike at the end of the year was also responsible for the equities rout, confirming the market’s fears the era of accommodative monetary policies is reaching its end. For the Fed, the road ahead is not easy given the solid economic outlook and resilient domestic inflation in one hand but a slowdown in global economic prospects and the US economy in the other. The data calendar is light for the US economy today, and all eyes remain firmly fixed on the Fed meeting Wednesday evening for any hints of forward guidance for 2019.
The loonie continues to weaken against the dollar as WTI crude dips below $50 a barrel for the first time since 2017. A weaker US dollar this morning has allowed the loonie to stem its losses, but with the oil market cracking a key psychological level, the loonie remains in a precarious situation. The data calendar is bare for Canada today, with the main data releases coming tomorrow in the form of Consumer Price Index and Friday with Gross Domestic Product releases. The loonie may find today a difficult day to prevent reaching 18-month lows against the US dollar.