To Brexit or not to Brexit, that is the question
May 22, 2019
Yesterday, Theresa May pinned her hopes on increasing votes in favour of the Withdrawal Bill from Labour, as opposed to votes from within her own Tory party, ahead of the vote in 2-weeks’ time. The Prime Minister promised Labour a “new deal” that included a confirmatory vote on the final Brexit deal, should the final deal get passed by Parliament. A confirmatory vote was a key demand of the Labour party in cross-party talks, which broke down last week after almost two months. The concession by May was aimed at swinging Labour lawmakers who previously supported the party’s stance on the matter. The news prompted the pound to rally as it increased the chances of Brexit being reversed, or negotiations potentially having a new mandate to deliver Brexit. However, the rally was soon shot down along with May’s hopes after Labour leader Corbyn refused to support the “same repackaged bad deal” along with DUP members and Eurosceptic Conservative members also voicing their distaste. The saga will continue today with an impending bruising for May at Prime Ministerial Questions at 12 followed by a statement to the House of Commons shortly after on the latest Brexit plan. In the UK newspapers today, Labour backbenchers seem in no rush to dig May out of her current hole, Tory MPs urge May to cancel the vote, while backbench Conservative MPs urge the 1922 committee to bring forward a potential vote of no confidence in the party leader. Watch this space as sterling is likely to become increasingly volatile over the coming few weeks. April’s CPI reading for the UK is released at 09:30 BST this morning, but is unlikely to have much market impact given political developments of late.
Lights, camera, action – this is exactly where the single currency wasn’t yesterday as the absence of first tier data in the run up to the European Parliamentary elections kept EUR far removed from the FX spotlights. A footnote in yesterday’s trading session was the Eurozone May Consumer Confidence, which came in better than expected and last month at -7. This is well above the long-term euro area average of -10.7 and the index that has embarked on an ascend since the start of 2019. This indeed suggests that the current tight Eurozone labour market and solid real wage rises have blown some positivity into consumers, which can lead to a boost for the economy through increased household spending in coming quarters. No data due today for the Eurozone.
The dollar traded with a mixed tone yesterday and this morning, making decent gains versus NZD, AUD and GBP but weakening slightly to NOK and CAD. The trade dispute between the US and China showed no signs of letting up. Chinese state media engaged in various sabre rattling efforts, while reports emerged that the US is considering adding more companies to the blacklist it condemned consumer electronics giant Huawei to last week. The Federal Open Markets Committee latest meeting minutes will be released today at 19:00 BST. Given the Federal Reserve Bank of St. Louis President James Bullard said this morning that December’s rate hike may have “slightly overdone it”, the balance of opinion among the rate-setting members will be worth examining closely.
The loonie performed well yesterday and is currently the best performing G10 currency since Bank of Canada Governor Stephen Poloz on Thursday said he thinks interest rates have a “natural tendency to still go up a bit”. Poloz spoke on Thursday about there still being signs of underlying strength in the economy, something we’ll be scanning today’s Retail Sales data for. These data are out at 13:30 BST and may start to confirms Poloz narrative that the recent soft Gross Domestic Product growth is just a “detour” and better times are to come.