Daily Brexit update: A Right Royal Nudge

Daily Brexit update: A right Royal nudge

Britain’s official default stance in negotiations with the EU is still that the UK is prepared for a no-deal Brexit. It’s the same one that’s been reiterated throughout the process. The crucial difference added over the last few days, by senior ministers, on their own behalf, and Prime Minister Theresa May’s, is to stress that ‘no-deal’ would suck. The point was underlined again on Friday by Chancellor of the Exchequer, Philip Hammond, Britain’s top finance minister. The PM was “committed to getting a deal,” and “willing to compromise”, he said.  This comes after the signs we noted earlier this week among Brexit supporting Tory rebels. In turn, government supporters are now inching closer to those demanding more flexibility on red lines, chiefly the notion that a ‘no-deal’ is an option. It’s even possible that a broader convergence away from “dug in” positions—to quote Hammond again—is afoot.

A report in the Tory-supporting Sun newspaper said Northern Ireland’s DUP party, whose votes prop up the government, could be warming to May’s deal. The predictable condition, of course, is that the EU must add a time-limit to the backstop plan. The EU continues to insist that no such guarantees will be forthcoming. Still, the DUP could be signalling that a form of agreement is becoming more possible. This, after the Queen called for a “coming together to seek out the common ground”. Her words are unlikely to have more than superficial impact, but they appear to have sent ripples into Brexit protagonists’ angst-ridden collective consciousness. This doesn’t change the reckoning for Parliament’s second vote on Theresa May’s bill on Tuesday much. But it does little to reverse investors’ increased confidence that a market-friendly EU divorce, at worst, is in sight.

How this affects our Brexit Top 10 markets:

GBP/USD: Technical and fundamental indications of sterling’s improving health keep coming. On course for its biggest rise in 15 months, the pound has paced its closely watched 200-day moving average—last at $1.3059—for the first time since May with flying colours.  The rate continues to set new 3-month peaks as the last session of the week wraps up in the U.S. after its best one-day rise of the month. That’s in keeping with option market implied volatility grinding to deeper two-month lows. Topping-out technical indicators like the daily slow stochastic oscillator now flag downside checks as increasingly appropriate. But that $1.3059 can be relied on for support as sights get set on reversal tops at $1.3246-$1.3297 in September and October.

GBP/JPY: Sterling pulls further away from its long-time psychological bugbear of ¥140 after a three big-figure move in just three days, again pointing to a deep change in underlying sentiment. Bulls will next target tight consolidation between ¥144.6 and high ¥145s late in November backed by former resistance-turned-back-to-support of ¥142.75.

EUR/USD: With downside limited by the ECB’s narrowed window as to when it could begin raising rates, the $1.13 floor is holding. Retreating risk aversion has done the rest, leaving the fibre still up 110 pips on the day and lots of room in terms of momentum gauges and quarterly range top around $1.15.

EUR/GBP: Not such a clear move vs. the euro, possibly reflecting single-currency firming elsewhere and the pound’s solid 2% sprint over the week. Sterling stalls almost bang on support for the cross of 0.8617, where it bounced sharply in mid-April.

UK 100: Increasingly muscular sterling isn’t the best look for the FTSE’s health and the index continues to undershoot the January global stock market rally. March futures extend the ‘cash’ index’s 0.1% Friday fall to more like -0.5% though there were tell-tale individual signs of strength.

Germany 30: DAX’s 1.4% rise backs the stability of improved sentiment whilst some pleasant earnings surprises were also a big help.

Lloyds: a 1.5% Lloyds rise underpins investors’ read of Brexit prospects.

Barclays: A 0.8% rise is in step with a decent Wall Street session.

Tesco: The high street is expected to get a fillip as deal prospects improve, helping the top retailer to outperform the market with a 0.9% rise

Barratt: Barrett fell 0.5% on Friday though is way ahead of the broader market in January with a 16% climb.

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