Daily Brexit update Coveney comfort for sterling and May

Daily Brexit update: Coveney comfort for sterling (and May)

Irish politicians have a knack of turning up to support Prime Minister Theresa May just when she needs it. Not just the tense deal with Northern Ireland’s DUP, which props up the UK government. That’s in a class of its own.  But it was May’s Irish counterpart Leo Varadkar who tacitly led an outbreak of more conciliatory language earlier this month, after the President of the European Council, Donald Tusk, infamously told Brexiters to go to hell (essentially). And after another bruising week, Ireland’s foreign minister, Simon Coveney, did the oil pouring. “The EU is serious about trying to help”, he said. Coveney stressed that “scepticism” had increased after May’s latest lost vote showed the gap between her and Parliament is as yawning as ever. Nonetheless, “the Irish government wants to see a package that will help her get a deal”, so long as it doesn’t compromise “…the fragile balance that was put together in finalising the withdrawal agreement." As greenlights go, that’s possibly as good an assurance of continuing EU receptivity as May will get. She now has eleven days to get undertakings from Brussels about the backstop, chiefly its impermanence. If none emerge by 26^th February, the PM will face another session in Parliament with higher stakes a day later, in which votes actually matter, and when supporters and non-supporters alike have signalled their patience could be at an end. At that point, it will take more than a nod from Ireland to keep No. 10’s Brexit on track.

How this affects our Brexit Top 10 markets:

GBP/USD: Although set for its third straight weekly drop, Coveney’s comments and a surprisingly robust retail sales print—albeit helped by winter sales—triggered a solid session. Yet there’s little sign that sterling’s plain-sailing days of the second half of January are set for a comeback. With hedgers and speculators edging back into weekly, monthly and three-month options trades it is clear markets see the real crunch points ahead. It’s worth watching options covering 13^th March, the date mentioned in an amendment tabled by Labour’s Yvette Cooper which is expected to return if voting goes ahead on the 27^th. The amendment calls for an extension of the Article 50 deadline, 29^th March, if a deal hasn’t been approved by 13^th. Meanwhile, cable’s 120-pip bounce from Thursday’s sharp sell-off jutted the rate above its closest resistance of $1.2865, offering a chance of continuing momentum.  GBP/USD remains below short-term averages though, including the 21-day exponential and far away from a declining 200-day too. Latterly at $1.2891, Thursday’s $1.2957 failure high is a condition for an extensive up move.

GBP/JPY: Against the yen, implacable resistance of 142.75 serves as the chief barrier, though the pound saw its most solid rally of February so far on Friday, rising 91 sen to 142.34.

EUR/USD: Euro pairs saw fresh pressure as the ECB signalled plans to rekindle the central bank’s LTRO scheme of cheap loans to banks are increasingly live. EUR/USD slid to $1.1231, its lowest since mid-November before offers emerged. It then arced up to persistent $1.1313 resistance, where offers are emerging again.

EUR/GBP: The pound’s win vs. euro was also it biggest this month at 50-odd pence. The pair is toughening again on mid-to-low 87s as it has tended to throughout February.

UK 100: Smoke signals on trade talks continue to be promising, even if largely inscrutable, so all major stock indices, including the FTSE are closing the week firm.

Germany 30: The DAX outperformed with a rise of almost 2% as most heavyweights were solidly green on hope of continuing ECB stimulus for banks that could trickle down into the economy too.

Lloyds: A solid RBS quarter buttressed FTSE 100 lenders ahead of more of their earnings reports next week. RBS’s chief rival, with even more exposure to the UK (and Brexit) Lloyds, rose 1.8%.

Barclays: Its 1.6% rise had an eye to both Barclays considerable UK deposit base and its major investment bank operations in the U.S.

Barrett Developments: The builder’s 0.1% downtick capped a week of profit taking following a one-year high on Monday.

Tesco: The chief retailer made the FTSE’s top 10 with a 2.9% advance. The adoption of a new reporting standard, called IFRS 16, will increase reported operating profit whilst reducing pre-tax profit.