Super Tuesday; a day of amendments
January 29, 2019
Last week’s sterling optimism began to wane yesterday as the vote on ‘plan B’ amendments loomed. Tonight, lawmakers will meet in the House of Common to vote on up to 14 possible amendments to Theresa May’s neutral motion. The potential final form of a Brexit deal may begin to take shape as each amendment commands a clear majority in the House of Commons, however, any amendment passed is not legally binding on the government but in practice, the political pressure would likely bind them in practice. After months of uncertainty, a direction and a common stance from Parliament to take to the EU should begin to show. Last night, the Prime Minister urged MP’s to support the Brady amendment, which would push through her original ‘plan A’ that was rejected in the meaningful vote but with an “alternative arrangement” instead of the contentious Irish backstop. However, hardline Conservatives such as the former Foreign Secretary, Boris Johnson, stated that it was a ploy that would not see a clean break from the EU and threatened to torpedo such plans. The most likely amendment to pass at this moment in time is Yvette Cooper’s ruling out of a no-deal Brexit. Regardless, the question after tonight will be if the EU signs off on what is needed for a deal to be ratified into UK law, and whether they will do so prior to the March 31st deadline.
The single currency may as well have been called the stealthy currency yesterday as EUR slowly moved towards the top of the G10 currency board and made inroads against USD for the second day in a row. The main driver for the positive sentiment that surrounded euro was European Central Bank President Mario Draghi who testified before the European Parliament and said he doesn’t see the need for extra stimulus. This was taken as a positive by markets as the recent slew of disappointing data in the Eurozone spurred rumours about potential extra monetary stimuli, which would then drag on the value of the euro. Meanwhile, the growth of one of the broader measures of the money supply, M3, increased by 4.1% in December year-on-year. This beat expectations, although the growth of the money supply still confirms that the Eurozone economy is slowing. The Spanish Unemployment rate continued on its downward trend as it came out this morning at 14.5%, as forecasted.
The dollar posted broad losses against the G10 yesterday, mainly against the euro, Swiss franc and Japanese yen in a general risk-off environment. Poor earnings data from US companies such as Caterpillar Inc and Nvidia Corp fuelled global growth fears after both companies cited weak Chinese demand. Despite US-Sino relations soothing on the surface, all is not well. The proverbial swan is paddling hard to stay afloat after the US accused China’s Huawei of stealing American intellectual property from T-mobile and violating sanctions on Iran. This compounds tensions on intellectual property between the US and China, which was the catalyst to previous trade tariffs, and shook investors nerves. With a possible synchronised slowdown in economic growth on the cards, a re-emergence in trade protectionist measures would all but solidify bearish sentiment.
CAD was the worst G10 performer against the US dollar yesterday, despite the greenback from broadly weakening. This is because the general risk-off move yesterday punished oil prices and evidenced the loonie’s sensitivity to crude yet again. WTI crude fell 2.5% in yesterday’s session. Gross Domestic Product is out on Friday, which will show us to what extent the domestic economy can provide a counterbalance against global currents.