Pound dives as PM may have used all her lives

Given that the UK government could be on the brink of collapse the FTSE was relatively stable compared to the wild swings seen in the pound and to heavy losses experienced across Europe. Whilst a Brexit beaten pound and heavyweight miners offered support to the FTSE, stocks with large direct exposure to the UK were under growing pressure.

As the day’s progressed there are increasing concerns that not only the Brexit deal could be off but also that Theresa May could have run out of lives. Theresa May faced a bashing in the commons across the day where only a small number of Conservatives supported her deal, however the majority plus the opposition were highly critical. The exchanges in the commons make it difficult to see how Theresa May’s plan can make it through Parliament or even survive?

As Theresa May’s political life hangs in the balance the pound heads for its second largest daily drop this year, down 1.5% versus both the euro and the dollar.  Growing uncertainty and fear of a disorderly Brexit was also reflected in the money markets, which have almost completely priced out a rate rise by the BoE next year. Now four resignations in, we are left wondering how many more will follow? The more resignations that Theresa May has to swallow, the harder it becomes for her to retain her authority.

Brexit sensitive stocks fall
On the FTSE, miners were dominating the upper reaches thanks to a recovery in the price of some base metals. On the downside heavily UK exposed stocks were the biggest decliners. Housebuilders have had a shocking session hit by a double whammy of a poor update from Bovis and fears that a disorderly Brexit will bring the already slow housing market to a complete standstill. Persimmon, Taylor Whimpey and Barratt Developments were down 10%, 9% and 8.1% respectively. The Royal Bank of Scotland was also hit hard as investors price in the chances of a general election. With the labour party pledging in its manifesto to break up the bank, investors aren’t willing to take the chance. Other banks such as Barclays and Lloyds were also heavily lower on the Brexit fallout.

The outlook has just grown increasingly more uncertain. There are several possible paths from here, including a very high probability of a disorderly Brexit and possibility even a general election. Given the markets dislike of uncertainty volatility mainly in sterling but also in the FTSE could step up going forward.