Sterling buyers still in control, European equities firmer
It’s a massive week for the pound and for Brexit. The
PM suffered a setback on Saturday and was forced to send the dreaded
letter to Brussels asking for an extension, but left it unsigned and sent another (signed) missive
saying delay is disaster.
It looks like Boris Johnson will make another stab at
winning parliamentary support for his Brexit deal. We need to see if
Speaker John Bercow allows it – his record on frustrating Brexit is well
known. Otherwise the government will bring forward implementation
legislation quickly to drive through the bill in time so that a delay
is not required. The government thinks it has the numbers for the deal in
its raw form to pass.
Sterling remains vulnerable to significant price swings but has yet to make any real shift off the back of the weekend’s votes. Traders had anticipated a volatile open down under, but we’ve not really seen anything too drastic so far. GBPUSD fell a touch to trade a little below last week’s highs, but buyers hold control above 1.29 and subsequently pushed it up to 1.30.
The pound’s price action and resilience in the face of the
defeat for the PM on Saturday shows the market remains constructive on a deal
being agreed, whether it’s now or sometime in the coming weeks. No deal risks appear to have
diminished but there is, without approval of the deal and approval of all
the required steps to make it reality, still a strong chance of no-deal come
Elsewhere, the euro remains bid against the dollar with
EURUSD starting to build upside momentum with a break above the 100-day moving
average at 1.1160. Next stop is the 38% retracement of the move up from the
2016 lows to the 2018 highs around 1.190.
European markets were firmer on the open with the DAX and
FTSE 100 both +0.4%. The DAX in particular is flirting
with a key level as it attempts to break out above the July peak and
cement its two-year highs north of 12700. US markets had closed weaker on
Friday with Boeing and Johnson & Johnson leading the Dow south by 1%.
The S&P 500 was off by 0.4% at 2,986. A slew of
earnings are due this week – these will be key for shaping our view of just how
much the consumer is starting to suffer from the trade war. Last week’s reports
were broadly positive.
Banks and house builders on the FTSE evinced market confidence
that no deal risks are lower – either we get a deal done by Oct 31st or
there will be some kind of delay, confirmatory referendum etc. RBS, Lloyds,
Barratt Developments and Persimmon all up more than 1%. After a tentative open, the FTSE 250 rallied 70 points off
Friday’s close as investors seemed to see the Brexit cup half full.