May looks defeat in the eye and says “not today”

December 12, 2018

GBP

Sterling sold off yesterday on the headlines from Sky News that Theresa May will face a vote of no confidence from the Conservative Party, but has actually rallied slightly this morning on confirmation the vote will occur tonight. May stood defiantly when she addressed the nation in front of 10 Downing Street, stating that she will contest the vote ‘with everything she’s got’. Sterling remains in flux, however, as further uncertainty creeps into the market ahead of tonight’s main event, where the last few months worth of work may be undone in the space of hours. Should May lose and become the first Prime Minister to be removed by a no-confidence vote, Article 50 will likely be pushed back as the Tory party scramble to elect a new leader before Christmas. If May sees off the battle, however, the process will likely continue down the route of attempting to gain concessions from the EU prior to putting the Withdrawal Treaty through Parliament.

EUR

The euro fell nearly a whole point against USD during yesterday’s session after Italian authorities complained about European budget rules not being equally applied to all state members, raising concerns on escalating tensions. Italy, who have been in heated dispute with Brussels over the potential for their own budget plans to exceed the EU’s deficit limits, were incensed when French President Emmanuel Macron yesterday announced spending increases in a bid to placate protesters in Parisian streets. Concern over this move caused markets to drive France’s borrowing costs higher for the fourth day in a row, with the cost relative to its German benchmark now almost half a percent higher – the biggest gap since Macron’s election last year. This morning, however, the single currency has felt some relief after the Chinese moves on cutting car tariffs has seeded some optimism on European stocks. Brexit news, on the other hand, is also promising a volatile day for the euro while the markets keep fairly sceptical on tomorrow´s ECB statements.

USD

The DXY composite Index gained half a percentage point yesterday on the back of the sharp fall of the euro and sterling, two of its major counterparts. Since the opening of today´s session, however, it has remained flat, after positive signs of US-China trade talks, with Trump claiming he would intervene in the Huawei case, prompted advances in US and global equity markets. To make the party even more interesting, in harsh conversations with Democratic leaders, Trump has also threatened on shutting down parts of the US federal government if he does not get enough support in Congress to raise funds for his promised border wall with Mexico. Today, the release of the CPI Index at 13:30 GMT might add flare to the monetary policy discussion between the oval office and the FED.

CAD

The loonie is resisting the broad bout of dollar strength as oil prices continue to creep up. Russia’s promises to target a 3% production cut has benefitted crude markets and with little on the data calendar for the week, oil is likely to continue to dominate loonie price action.

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