Intraday Market Thoughts

May Survives, what’s Next?

Jan 17, 2019 11:51 | by Adam Button

The pound turns stronger and less volatile. PM Theresa May's government survived a confidence vote yesterday, as widely expected. The latest GBP bounce is emerging after optimistic DUP comments regarding today's talks with May. Consolidation was the theme in the broader market but yen crosses made some headway into Thursday. Euro regains 1.14 , while gold forms a bullish pennant. Yesterday's release of US retail sales did not happen due to the ongoing govt shutdown. We turn to the Philly Fed survey, expected  at 9.5 from 9.4 (currently the weakest since Aug 2016).  Yesterday's two Premium trades have been filled and are in progress.

فيديو المشتركين يفسر صفقتي أمس

The confidence vote in UK parliament unfolded as expected with Conservatives and the DUP falling into line to maintain a majority in a 325-306 vote. Unlike a day earlier, there was no drama in the market before or after the voting.

Cable attempts to break the 1.2940/60 resistance after holding firm  above 1.2830s. GBP/JPY recouped the entire flash-crash drop and rose to the highest levels of the year on Wednesday as the yen sold off. Risk trades have had an impressive bounce but risks loom.

On Monday, China will release retail sales, industrial production and GDP data. It's also a US holiday. Ahead of the weekend, investors may look to pare risk and that could lead to some late-week selling, something that could reverse some of the recent gains in risk trades, including GBP/JPY. China nervousness also helps explain Aussie reluctance to break above 0.7250.

Back to Customs Union & Backstop

Back to the UK. Several reports have pointed to the EU preparing for an Article 50 extension. Talk about another election remains the recurring call from Labour, but markets are focusing on how the Backstop issue will be reconciled between the DUP and the EU.  Also keep an eye on a potential change of tone regarding the Customs Union from May. As long as there are realistic chances of extending Article 50 and/or striking some sort of Customs Union, GBP will remain firm.

The deadline for action is likely Feb 4, which would be the final day to call a general election and have it ahead of the March 29 Brexit deadline. Otherwise May could push Labour and hard-Brexit members of the Conservative party into a game of chicken against a hard Brexit. They could respond with attempts to strip the PM of the opportunity for a no-deal Brexit. In short, the UK remains deep in a quagmire but a signs of an extension in Article 50 or cooperation with Labour could give the pound a powerful boost.

Act Exp Prev GMT
Retail Sales (m/m)
-0.8% 1.4% Jan 18 9:30

مقابلتي مع العربية قبل تصويت اليوم

Jan 16, 2019 17:27 | by Ashraf Laidi

مقابلتي مع قناة العربية عن قوانين الاحتمالات بشأن تصويت اليوم و تداعيات السيناريوهات المختلفة. المقابلة الكاملة

GBP Solid ahead of May's Vote

Jan 16, 2019 12:59 | by Adam Button

Do all roads lead to an extension of Article 50? Or do they lead to a soft Brexit? Theresa May's meaningful Brexit vote failed in spectacular fashion and she will face a confidence vote later this evening (from the whole Parliament and not by only her Party as was the case last month). Cable whipsawed before and after yesterday's vote, as it sank to 1.2670 only to rebound to 1.2870. Earlier today, BoE governor Carney said the pound's recovery reflects reduced chances of a no-deal Brexit. The Brexit saga is far from over. A new trade for Premium subscribers was posted earlier this morning and sent out 2 charts & 4 supporting notes. A GBP trade is likely to be issued around the close of the London cash stocks session.

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GBP Solid ahead of May's Vote - Performance 16 Jan 2019 (Chart 1)

Theresa May tested her Brexit deal in Parliament and the result was resounding as it failed 432-202. That's a massive rejection but it wasn't entirely unexpected. Betting sites had pegged 200-229 votes in favor as the most-likely outcome.

What remains entirely unclear is how the UK will get out of this mess. The next step is a vote of confidence in the government, which will take place today (Wednesday) just after 1900 GMT. Despite the overwhelming rejection of the Brexit bill, May is expected to win. The DUP and ERG said they will support her and Conservatives aren't likely to want to score an own-goal against themselves.That said, it's not impossible.

If PM May loses tonight, she would have 14 days to regain the confidence of the House or the UK would head to a general election (which would take place after mid February). Until then, May could resign as leader and be replaced.

If PM wins (expected) It is widely indicated by MPs and indirect reports there will eventually be enough support for May's govt as well as for a deal similar to what she has proposed. Undoubtedly she will try to go back to the EU and win some kind of concession for which she would seek another Parliamentary vote. So far the EU has said that isn't happening, but we did hear of the bloc's willingness to tweak the agreement by some individual EU ministers.

Beyond that the UK remains in an epic quagmire. One option is for May to play a game of chicken with parliament as the March 29 deadline approaches but that only raises the likelihood of a no-deal. Already there are calls to delay it but it's tough to see how that solves anything. Alternatively, Article 50 could be extended to delay Brexit beyond March 29th, or the EU negotiations break down and a General Election could also be a consequence.

Meanwhile, the pound has been wildly volatile. It sold off heavily ahead of the vote then recouped the entire move. It's a stretch to ascribe any coherent narrative to either move as everything unfolded largely as expected.

China Uncertainty & Brexit Scenarios

Jan 15, 2019 13:57 | by Adam Button

We have already covered Brexit yesterday on here so we'll cover China's dismal trade figures, which raise fresh questions about the risks of a sharp slowdown. CAD & NZD are the strongest and CHF & JPY are the weakest since the start of Asia's Tuesday session. The Brexit vote is due later today at 14:00 Eastern/19:00 GMT. The Premium video ahead of the Brexit vote shall be posted to subscribers after the close of the London session.  More on Brexit Vote Scenarios here

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China Uncertainty & Brexit Scenarios - Brexit Trade Models (Chart 1)

China's economy could be struggling far more than believed. We have long highlighted the importance of Chinese imports as a leading indicator of global growth. Trade is also one of the most-reliable Chinese data points owing to its bilateral nature  -- ie it's extremely tough to manipulate given that both trade partners report the number.

In yuan terms, imports fell 3.1% year-over-year in December compared to a rise of +12.0% expected. In dollar terms imports were down 7.6% y/y (lowest since mid 2016), compared to +4.5% expected. Either way it's one the largest misses on Chinese data in memory.

The market was surprisingly sanguine. The thinking is that this is a temporary slowdown that will be reversed by the end of the trade war and Chinese stimulus but that's hardly a guarantee. Moreover, China has previously resorted to industrial levers, but this time it will require consumers cooperate -- a tougher task ahead.

The Chinese data calendar is quiet until next Monday when retail sales, industrial production and GDP are all due. Watch for de-risking on Friday ahead of the data and keep an eye on corporate commentary on the state of China's economy.

In the shorter term, the focus will be on the meaningful Brexit vote. It's expected between 1900-20:00 GMT. For more on this, please see yesterday's IMT.

الإسترليني قبل وبعد تصويت الثلاثاء

Jan 14, 2019 17:28 | by Ashraf Laidi

تُطلق رئيسة الوزراء البريطانية تيريزا ماي محاولة في اللحظة الأخيرة لإنقاذ صفقة خروج بريطانيا من الاتحاد الأوروبي، محذرة أولئك الذين سيصوتون ضد خطة الخروج غداً (الثلاثاء) في البرلمان، والتي من المرجح أن تبقي بريطانيا في الاتحاد الأوروبي أكثر من المغادرة دون اتفاق. ويدعى الخروج بدون اتفاق بـ “بريكست بدون صفقة”، وهو السيناريو الأسوأ بالنسبة للاقتصاد والجنيه الإسترليني. التحليل الكامل