This week the House of Commons looks set to give us a crescendo before it takes its involuntary recess. The vote on further delaying Brexit will effectively push the UK into one of two scenarios; a nigh-on guarantee of a No-Deal trajectory (excluding the possibility the EU blinks and offers concessions), or Boris Johnson removing the whip from Tory rebels and calling a general election in an attempt to solidify his majority. Either outcome will spell more uncertainty – market sentiment is in a Scylla and Charybdis scenario.
Speaking on market opening movements this morning was Spreadex Financial Analyst Connor Campbell,
“Sterling likely feels it is in a no-win situation, a sentiment expressed in another rough open for the currency this Tuesday.”
“If the week’s Commons Brexit delay vote fails, then the country remains on track to crash out of the EU without a deal. If it succeeds, then it appears it will trigger a general election on October 14th, the prospective uncertainty of which is enough to turn the pound’s stomach.”
“Then you get to the potential outcomes of such a snap vote: a Corbyn government, which investors wouldn’t be a fan of; a strengthened hand for the no-deal-chasing Johnson; or another ambiguous muddle that leaves no party with a workable majority.”
“Subsequently, it is not hard to see why sterling has started Tuesday sinking to a near-3-year intraday nadir of $1.1975 as it fell 0.8% against the dollar – if it ends up closing below $1.20, if will be the first time cable has done so since 1985. Things are a bit more manageable against the euro, though even then a half a percent decline puts the pound at a 12-day low of €1.0944. A construction PMI that is expected to remain in contraction territory even if it does rise month-on-month isn’t going to help.”
“Interestingly, this didn’t give the FTSE much of a lift. The UK index is sitting a smidge away from 7300, a level it abandoned around a month ago; however, it might be feeling a bit uneasy itself given how precarious the political situation is right now.”
“As for the Eurozone indices, the DAX and CAC fell 0.5% and 0.3% respectively, perhaps put off by the euro’s gains against the pound, alongside the confirmation of fresh tariffs on Chinese goods by the US.”
So that marks the end of last week’s consistent rally – but it shouldn’t be all doom and gloom. Needless to say the FTSE rallied on the Sterling dive in 2016, and we can only assume a similar pattern will emerge in a likely post No-Deal scenario, where the pound dives and our exports soar.
Other news and macro financial updates have come from; Parliament being prorogued, No-Deal Brexit preparations, UK GDP during the second quarter, the London Stock Exchange Group (LON: LSE), the US-China currency manipulation debacle, and analysts’ outlook for markets and currencies.