Daily Brexit update: Sterling up, but unlikely to get away

Honda didn’t cite Brexit for its decision to close a plant in the UK...

Daily Brexit update: Sterling up, but unlikely to get away

Honda didn’t cite Brexit for its decision to close a plant in the UK, putting 3.500 jobs at risk, though there’s little doubt that the 38 days remaining before Britain’s planned 29th March exit will have factored in the group’s deliberations. Just as inevitably, the news is now a part of the insalubrious and interminable political Brexit debate that was arguably at the root of another Japanese automaker’s decision to retrench in recent weeks, together with similar signals from both domestic and overseas-based manufacturers. So, either it is optimism that’s handing sterling its best start of the week since late January (GBP/USD is up approaching 140 pips from Monday’s low) or, more likely, solid soundings from the economy combined with participants succumbing to the temptation to take profits catapult sterling back over the $1.30 handle. Tuesday data showed the labour market remained stable at the headline level in December, with earnings growth holding at a decade high. The readings are a partial reassurance that the economy could yet avoid the worst possible outlook, even under a more damaging Brexit. Though as Prime Minister Theresa May prepares to venture to Brussels again on Wednesday, with essentially the same gambit that EU leaders have rejected multiple times, it ought to be little surprise that markets are less sanguine below the surface. If anything, the splintering of seven MPs from the Labour Party on Monday (on the cards for some time) shows the Parliamentary consensus needed to foment a breakthrough is still lacking. As such, medium-term options trades show rising speculative and safety-seeking demand around Brexit dates and beyond. Incongruous market calm is unlikely to last.

How this affects our Brexit Top 10 markets:

GBP/USD: The impressive run is taking a peek above the region of resistance that was support last month: $1.3009-1.3057. Through here, in theory, the rate could eye secondary highs from the end of January near $1.3160. But short-term oscillators suggest current prices may be the limit on the foreseeable horizon.

GBP/JPY: A one-yen surge demonstrates underlying sterling strength as focus moves to swing highs of 144.84 yen and thereabouts.

EUR/USD: The dollar’s retreat is revealed by a 41-pip advantage even for the hamstrung euro, which is nevertheless well encased by its range since October.

EUR/GBP: The best guess for a target of the pound’s muscular 60-pip plus move looks to be long-standing EUR/GBP support of 86.17p.

UK 100: The index’s fate was sealed by disappointing earnings by its biggest weight, HSBC and from giant miner BHP. FTSE 100 closed 0.6% lower.

Germany 30: Germany’s index added less than a tenth of a percentage point, epitomising global market ambivalence. Investors try to balance trade talk optimism on the one hand and retreating earnings and economics on the other.

Lloyds: A negative read from the more internationally focused HSBC leaves Lloyds down 0.3%.

Barclays: A slight rise hints at quarterly out-performance when Barclays releases earnings later this week after HSBC’s lower than forecast results. The stock closed 0.5% higher.

Barratt Development: Canada’s Canaccord Genuity, a stock brokerage has cottoned on to UK developers’ solid fundamentals, despite a challenging outlook (AKA, Brexit). Analysts at the firm raised a slate of target prices, including for shares in Britain’s largest house builder. They closed 1.2% higher.

Tesco: Tesco shares also outperformed, quite in line with an up phase for sterling-tilted assets. Reports suggesting dominant supermarkets are securing contingency supply chains also appear to have been well received. Morrisons, Sainsbury’s and Tesco rose about 1% a piece.

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