Daily Brexit update Soft Brexit stall helps sterling sail

Slowly but surely, the political stalemate is showing signs of a thaw. The Labour leader Jeremy Corbyn began showing first distinct signs of dropping aversion to a second referendum last week and he took a small step further on Tuesday. His party earlier tabled an amendment, in the leader’s name, which he dubbed “Labour’s alternative plan”, noting that it included “the option of a public vote”, using the same term to refer to a possible referendum as he used last week. For now, any such initiative is being couched in cautious terms. Labour reiterated its official stance against a ‘ref. 2’, adding that it didn’t expect the amendment to win parliamentary support. It’s no punchy call to say there’s even movement on the other side of the aisle too, albeit not in the same direction. Staunch Brexit-supporting Conservatives have begun to drop unmistakeable hints that, given sufficient encouragement, they might be prepared to vote for Prime Minister Theresa May’s deal, despite rejecting it last week. The thinking is that as Britain’s 29^th March exit date looms, doing so would be better than the risk of a delayed Brexit or an eventual no Brexit. Arch Brexiteer Jacob Rees-Mogg told the FT he expected MPs who are members of the Pro-Brexit European Research Group he leads to “mostly hold our nose and vote for it”, if the PM gets satisfactory undertakings from the EU leaders she will soon revisit for the umpteenth time over the last few month. They have of course categorically stressed the deal is not open to renegotiation, and any assurances would have only quasi-legal assurances at best. So, Brexit reckoning remains firmly in no man’s land on closer look.   

Still, the changed ambience has helped sterling tack on its first distinct gains since beginning a clear consolidation late last week that eventually saw it reach, on Monday, similar lows as those seen on 17^th January. Its advance of just under 80 pips beginning just ahead of the European equity open culminated in a high for the week of $1.2927. There were two distinct parts of the move, and, according to my data from Thomson Reuters, they were of equal 40-pip size. The latter half enjoyed an additional charge from surprisingly robust employment data, with eyes particularly on the rolling three-month trend to November that inched to a decade high. Given the unwillingness of Bank of England policymakers to do anything nod by way of reaction to signs of a strengthening economy though, Brexit remains the touchstone for sterling sentiment.

How this affects our Brexit Top 10 markets:

GBP/USD: Mild volatility and slow-mo whipsaws continue. Having first erased all gains on the back of promising wage-growth data, cable was last pushing back to the same highs. At $1.2913 it was a matter of 14 pips from Tuesday’s $1.2927 peak. Given the small gap to proven resistance at $1.2929, action suggests traders are bearing the definitive decline that ensued last time at the last attempt to break above, on Friday; that swing bottomed 101 units lower yesterday at $1.2828.

GBP/JPY: Blame this cross’s slip on the re-emergence of ‘risk-off’, with a broad swathe of red across European and U.S. markets as additional Chinese growth details released this morning trigger a delayed reaction to the 28-year trough in growth announced a day earlier. The rate’s been becalmed around the 140 psychological marker since December though has settled into a ¥140.600.50-ish range over the last two sessions.

EUR/USD: The decline predicated on a weak patch in German data, that’s now echoing in Italy and also, with yellow-vest help, in France, has settled into a slow drift but continues nonetheless. A look at strong kick back support of $1.1313, last tagged early this month, is easy to predict.

EUR/GBP: Sterling’s path vs. euro looks smoother than vs. the dollar. Discrete 0.8813 euro support has been breached on four straight sessions. Oscillators might be rallying, but the pair now looks weighty, meaning the market may now have set sights for November swing lows near 86.50p.

UK 100: The FTSE, down 0.8% at last look, ails with global shares, though particularly with those in the country where its heaviest weights export most of their goods and services, China.

Germany 30: A lighter loss for the DAX, though not much lighter given a surprising hiatus in growth ahead of an ECB meeting on Thursday.

Lloyds: Lloyds is trading down 0.7% but the key thing to remember is that it’s outperformed the benchmark this month on soft-Brexit hopes, rising nearly 14% vs. the FTSE’s 3.7%.

Barclays: Globalised Barclays slumps 2.7%.

Shell: A 2.3% slip, somewhat in step with Brent’s 1.9% fall.

BP: BP fell 1.4%; perhaps a comment by its CEO earlier describing relations with Saudi Arabia as unchanged, helped offset some pressure.