As we now know, the British Parliament voted against Theresa May’s Brexit deal last evening. That was anticipated though since support for May never seemed enough to make it through. The GBP lost around 250 pips yesterday until the vote, but then surged 200 pips higher when the deal failed. That would look strange a few weeks ago, but the idea behind that move is that Britain might head towards new general elections soon. If that happens, the opposition Labour Party has a decent chance of winning and if they do, they will likely ask for another Brexit referendum. That’s why the GBP got a little excited yesterday and surged higher after the no vote.
Today, Theresa May will face a vote of no confidence in the Parliament after such a vote was pulled off at the last minute last month. If she fails to get a majority today, then the options are either a new government by the Tories, or new general elections. If she wins it, then we might see an extension of Article 50 as some have suggested, but that will have to end before the elections for the European Parliament in May this year. So, it’s a big mess right now and no one knows what direction this issue will take.
This morning we had the inflation report from Britain which showed another decline in the headline CPI (consumer price index) number, although core CPI ticked higher to 1.9%. The Chairman of the Bank of England Mark Carney held a speech on the Financial Stability Report before the Treasury Select Committee and he sounded as confused as us regarding Brexit and the future of the British economy. Although, he sounded pretty sure about a softening Chinese economy.
The European Session
- Too Early to Tell Consequences of Failed Brexit Deal for Barnier – EU’s Barnier commented earlier that the UK vote shows that political conditions are not ready in London. UK government must say what it wants to do next.
- Eurozone Expansion to Slow for Nowotny – ECB’s Nowotny sees expansion continue through 2018, albeit at a slower pace. Inflation level fulfills the price stability goal of the ECB and Eurozone core inflation is stable, but low. It is getting lower in my opinion. Nowotny added later that he doesn’t see a recession in the Eurozone. It is extremely important that we get a clear solution on Brexit as soon as possible and Brexit may have a ‘psychological impact’ on the Eurozone economy.
- Article 50 Cannot Extend Beyond European Elections – European Parliament’s Brexit coordinator Guy Verhofstadt commented early this morning saying that it is unthinkable that Article 50 can be extended extended beyond the European Elections which are in May. An extension to Article 50 does not satisfy everyone in Europe.
- BOE’s Carney Speech – The main comment from Carney this morning was that “the market view of Brexit vote is clearly expressed in FX market”. The GBP surged around 200 pips higher after the vote, so what does that mean? He added that the GBP rebound shows prospects of a no-deal has diminished, and that continued volatility in markets is to be expected. The BOE wouldn’t put weight on short-term market moves. He sounded pretty sure on China though, saying that the Chinese economy is going to slow down further this year.
- Italy December CPI – Consumer price index (CPI) declined by 0.1% in December in Italy as expected. It remained unchanged for the year though at 1.1% while HICP came as expected at 1.2% year-on-year.
- UK Inflation Report – CPI for December grew by 0.2% as expected while the YoY CPI declined to 2.3% from 2.1% previously. Although, core inflation ticked higher to 1.9% from 1.8% previously. The PPI (producer price index) declined by 1.0% that month. That was smaller than the 1.5% decline expected although it is the second negative month, but that’s due to declining Oil prices.
- Brexit Deal Not Open For Negotiation – European Commission commented earlier that there’s nothing more that the EU can do on Brexit. Time is almost up in the Brexit process and now they are waiting on the UK’s next move now. What will it be?
- UK PM May Speaks – Theresa May spoke a while ago saying that the Government is looking for a Brexit plan that can satisfy the Parliament. We will listen to the views of parliament to identify support for an option and Brexit outcome must give UK global trade opportunities. Same old, but her time is almost up.
- More Concessions to the Backstop from Europe – Handelsblatt was citing diplomatic sources on the matter, who apparently said that the EU is ready to make further offers to the UK regarding the backstop. But, they have to come from Ireland and I don’t think Ireland is willing to give any more concessions.
The US Session
- US MBA Mortgage Applications – US MBA mortgage applications grew by 13.5% on the week ending in January 11, down from 23.5% the previous week. Purchase index came at 278.5 vs 255.5 prior, market index also increased to 411.8 against 362.7 prior and the refinancing index grew to 1,172.4 against 987.9 previously.
- US Import Price Index – The US import price index declined by 1.0% in December against -1.3% expected. Again, Oil prices have affected import prices but that’s smaller than the 1.6% decline in November which was revised lower to -1.9%. Excluding petroleum, prices increased by 0.3% against 0.0% expected, so there you go. Prices are still down by -0.6% YoY but smaller than the -0.8% expected.
- Theresa May Is Against General Elections – General elections are the worst thing we can possibly do right now, says Theresa May. The worst thing was to call general elections in June 2017 when she lost the majority in the Parliament, alright Theresa?
- Crude Oil Inventories – US crude Oil inventories turned negative again last week declining by 1.7 million barrels after remaining unchanged for two weeks. They are expected to decline by 1.4% today.
- UK Govt No-Confidence Vote – Theresa May’s government will go through a no-confidence vote on the British Parliament later today. She has better chances than yesterday but I think at this point it will be better if she just goes.
Trades in Sight
- The trend is bearish
- The 20 SMA has been pushing the trend lower
- The retrace higher is complete
EUR/USD is getting pushed lower by the 20 SMA
EUR/USD has been on a bearish trend for about a month and the retraces higher have been pretty weak. The fundamentals look pretty bad for the Euro, while for the USD the fundamentals are solid for now. So, fundamentally the bearish trend makes sense. In the last several days, we have seen the 20 SMA (grey) push this pair lower and we are back up at this moving average now after a 30 pip retrace higher.
So, the Parliament vote on the Brexit deal is over now, but instead of making things more clear for us, it has made it even more confusing. The GBP surged yesterday but it has been bouncing up and down in a small range today. There is no direction in any asset right now and it will continue like this until markets find something else to focus on.