Intraday Market Thoughts

GBP Solid ahead of May's Vote

by Adam Button
Jan 16, 2019 12:59

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.


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