Graham Brady shows May the door
May 24, 2019
It looks like the chickens have finally come home to roost. Theresa May is set to announce her formal resignation today according to nearly all political commentators. The PM will retain her position until June 10th in order to host the visit from US President Donald Trump on June 3rd. The announcement is expected after May meets with Sir Graham Brady, chair of the 1922 committee. Brady holds an envelope of votes from the committee who voted on Wednesday whether they would opt to change Conservative party rules to bring forward a second vote of no confidence in the leader, and has threatened to open what would likely be an uncomfortable vote count for May should she not be forthcoming with a resignation date this morning. Should May announce her resignation, expect key figureheads in the Tory party to begin publically jostling for positions like marathon runners at the start line. The strength of no-deal rhetoric and the probability of a no-deal oriented leader will drive sterling in the short-term while actual Brexit negotiations sit in a vacuum.
Like a swimmer after a long winter only dipping in a toe in the still freezing water, EURUSD yesterday briefly traded at a fresh two year low after dismal May Purchasing Manager Indices set the tone for the day in the morning. The data suggest, however, that a full cold plunge for the single currency may follow later nevertheless. The Services PMI hit a four month low at 52.5, contradicting hopes this sector would take the Eurozone economy by the hand, why lessened global demand continued to keep the Manufacturing PMI subdued at 47.7. Dutch exit polls for the European Parliamentary election meanwhile showed a surprise victory for the Social Democrats, who will become the largest Dutch fraction together with the Liberal Party of current Prime Minister Mark Rutte. The Eurosceptic FvD party came in third, which can be an omen for the EP elections on Sunday in the rest of Europe; a solid performance by the centre parties who stay in power, while the Eurosceptics strengthen their parliamentary presence. No data of note is out today for the Eurozone.
The US dollar hit a multi-year high yesterday before falling from the heavens upon the release of May’s preliminary PMI releases. The preliminary composite PMI for May came in at a 36-month low with the reading in Services Business activity sitting at a 39-month low and the manufacturing sub-index proving bleaker reading as it hit a 116-month low. The 50.9 reading, down from 53.0 in April, marks only a minor expansion in the US economy and indicates the slowest expansion in overall business activity since May 2016. The most prominent bout of dollar weakness was seen against the Japanese yen which rallied 0.66% across the course of the day. Today’s durable goods release for April could further the dollar’s woes but with analyst expectations sitting at a substantial low of -2.0% it seems a high bar to clear for another substantial negative surprise.
A big negative surprise in data from the US yesterday sparked global growth risks yet again. When combined with heightened tensions between the US and China regarding Huawei, the risks proved sufficient to cause a $3.4 sell-off in WTI crude. Crude prices are set for their biggest weekly loss since December 2018’s rout this week, a factor which hasn’t worried the loonie just yet. USDCAD rose 0.3% yesterday despite the sell-off in crude, with the rally stemmed by a broadly softening US dollar. The Canadian dollar has begun this morning by clawing back some of yesterday’s losses, but with little on the data calendar, investors will be looking for guidance from crude markets.