European equity markets managed to stabilise yesterday shrugging off concerns about a global economic slowdown in the wake of a package of stimulus measures announced by Chinese authorities to support its economy. US markets also finished the day higher, closing at their highest levels in a month.
To no one’s great surprise MPs in the UK parliament voted unanimously against a deal that was intensely disliked by both Brexit and Remain sides of the House of Commons. In the hours leading up to the vote the pound had been slowly sliding back, however it soon recovered despite the scale of the defeat, as investors looked towards the next stage of the process.
This could include a possible extension of article 50, as MPs on all sides look to coalesce around a process they can all rally around, which could include a variant of either a Norway or Canada model, which still remains an enormous article of faith.
Various estimates before the vote had suggested that the deal would be struck down by a strong majority, and so it proved, with the deal only gaining the support of 202 MPs, with 432 MPs voting to reject it, a margin of 230. The scale of the defeat was enormous and under any normal circumstances would have been curtains for any sitting Prime Minister.
As we all know these are not normal circumstances and given the slowly shrinking deadline, now 72 days until the UK leaves the European Union, the country can ill afford the sideshow that a new PM would bring, and so Theresa May will continue on like the proverbial Black Knight in Monty Python insisting that every defeat is but a flesh wound.
In the wake of the enormous and historic scale of the defeat it was inevitable that Labour leader Jeremy Corbyn moved a vote of “no confidence” in the government which will be voted upon later today, at 1900GMT, which in all likelihood is unlikely to succeed.
The DUP have already stated that they will vote with the government on this point which means that the vote is likely to fail, which means that we are also closer to the time when the Labour Party will have to get off the fence and stop being ambiguous in their approach to Brexit, as well as the prospect of a possible second referendum.
The problem with a second referendum now is that the current deal is a corpse given the scale of the defeat, rendering any question a little moot in terms of any withdrawal deal.
It also means that MPs now have to start to coalesce around an agreement which they can all get behind, something that at this point in time remains a tricky thing to call.
We’ve heard a lot of talk that there is no majority in the house for a “no deal” outcome, yet here we are faced with just such a scenario. The big question is what happens with respect to article 50. Will MPs look to extend or withdraw it, given that they consistently tell us that they don’t want a “no deal” scenario.
Away from the Westminster circus we have the small matter of the latest UK inflation data for December, which could well come in quite a bit lower than the 2.3% we saw in November. The recent sharp decline in prices is welcome news and can be largely attributed to the fall in oil prices seen since the peaks in October. These falls are expected to continue to be reflected in the December numbers, along with heavy discounting heading into the Christmas period. With wages growing at their best levels in a decade the outlook for UK consumers could well improve further as we head into 2019.
EURUSD – continues to look soft having fallen below the 1.1420 area yesterday, and drifting down to the 1.1380 area. We have trend line support at the 1.1320 area
GBPUSD – despite a brief dip to 1.2670 yesterday evening the pound has managed to hold up fairly well rebounding strongly, with resistance still at the 1.2930 area, and the highs for this week. A move through 1.2930 retargets the 1.3000 area.
EURGBP – another choppy session with support at the 0.8860/70 area saw a brief spike to 0.8970 late last night. The overall range remains intact, with resistance at 0.9020 and 0.9100.
USDJPY – while below the 109.20 area the US dollar is susceptible to a move back towards the 107.50 area, and back down towards the 106.00 area, towards the lows at 104.60. We need to recover back through the 109.20 area to argue for a return to the 110.30 area.