Daily Brexit update: Sterling grinds lower after Brexit vote cancelled

There were already multiple possible permutations of what could happen next, the postponement brings them forward.

Daily Brexit update: Sterling grinds lower after Brexit vote cancelled

There were already multiple possible permutations of what could happen next, the postponement now simply brings them somewhat forward. They include a leadership challenge from the opposition, or the lower possibility of an internal one. Earlier, there was a confirmation ruling from the European Court of Justice that Britain can unilaterally withdraw its decision to leave the EU, enshrined in a mechanism known as Article 50. The government said the ruling, which confirms an opinion by a senior ECJ lawyer last week, is meaningless. It could, however, offer the government an escape route. It certainly bolsters the case of campaigners wishing to stop Brexit and/or hold another referendum.

Alternatively, the government could attempt to seek a better deal from the EU at a summit at the end of this week. Finally, the line that Theresa May continues to point to is that the postponed Parliamentary vote will merely be rescheduled, possibly as soon a later in December. Either way, to say that Britain’s political state is in a volatile state of flux is something of an understatement. A mild temporary boost to London blue-chips on the back of the weaker pound is the only indirect benefit for markets it.  At last check, the FTSE 100 was closing in the red, albeit not down as much as most large markets in Europe or on Wall Street. Market volatility is, as ever, one of the few certainties.

How this affects our Brexit Top 10 markets:

GBP/USD: Against the dollar, the rate had ground to fresh 18-month lows before Theresa May’s statement.  There is no robust-looking support before mid-April 2017 prices around $1.2517 from which sterling was catapulted 391 pips in just a day. A less sensitive region would be June 2017’s $1.2587 low. There was a fleeting-looking reversal higher as Theresa May told Parliament she would now seek “further assurances” from Brussels that the backstop will have “democratic accountability.”

GBP/JPY: Additional impetus from global risk aversion at the start of the week deepens sterling’s implosion versus the yen. The rate set a new six-week by careering past 142.75. (GBP/JPY eventually sprung to the highest levels since September from that late October low). There are plenty of possible supports for the spot from its price at last look of 142.60, though none are as convincing as prices surrounding a momentary touch of 139.89 on 15th August.

EUR/USD: The single currency in the context of the dollar was benefiting from investors’ reassessing the strength of the U.S. economy in light of recent disappointing readings, most recently on Friday, regarding the labour market. The typical cycle of sentiment involving sterling and the euro suggests that the single currency won’t escape the latest volatile downdrafts buffeting the pound for long.

EUR/GBP: Against the euro, the pound touched a 3-month low above the psychological 90 pence handle, at .9048. That was just short of a EUR/GBP 5th September high of .9051, which in turn was below an even more highly-charged spike and rejection of .9099 late in August, the 2018 high. Whilst Monday’s surge is spectacular, its limits look clearly marked.

UK 100: A mild temporary boost for London blue-chips on the back of the weaker pound.

Germany 30: The DAX was down 1.5%, holding close to its latest two-year lows.

Lloyds: All Brexit-sensitive assets are in fact near two-year lows, including Britain’s largest domestic bank, though it’s worth noting its 1.8% loss was fair to middling on a relative basis. Centrica was 5% lower as investors reduced holdings in line with the rising possibility of a change of government. Labour has promised to toughen regulations for utilities and even look at reprivatizing some large UK groups

Barclays: Barclays was modestly lower, losing 0.4%. It’s possibly a link to dollar advantages from deepening sterling woes. These imply a tailwind for Barclays’ considerable dollar-denominated revenues.

Shell: Shell is tracking OPEC’s modest supply-cut deal more than Brexit. As Brent crude relinquishes some gains made on Friday in reaction to the news, shares in Britain’s biggest oil major fall 1.2%

BP: Shell’s smaller rival looks buffered with a 0.9% fall. That’s slightly worse than the benchmark index, which is down 0.6%. Top company news is that the group looks to be ahead of upstream production targets.

Join our webinar

On 11th December the UK Parliament will vote on Prime Minister Theresa May’s Brexit deal. Join market analyst Fiona Cincotta at 2:00pm on Tuesday 11th December to look at how the vote could unfold and what the different scenarios could mean for the markets. Register now.

Build your confidence risk free
Join our live webinars for the latest analysis and trading ideas. Register now

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.