Backstop headlines reveal GBP’s sensitivity to rumours

Summary:

• Pound remains highly sensitive to Brexit rumours
• Debenhams collapses
• Crude Oil makes fresh 2019 highs

In a clear example of how headline driven the pound is at present, there’s been a swift move higher and just as quick a drop back lower as the latest round of Brexit rumour and counter-rumour hit the news wires. Reports that German Chancellor Angela Merkel was willing to grant a 5-year time limit on the backstop saw traders rush to buy the pound in anticipation of  a breakthrough that could have potentially revived PM May’s deal by bringing hardline Tory Brexiteers and maybe even the DUP back onside. However, the gains were fleeting and they were promptly handed back when it was confirmed the reports were untrue and we can expect more of this sort of thing in the coming days. There remains an underlying feeling that a large and sustained move in the pound is just around the corner, but the problem for the here and now is that there will likely be several false dawns beforehand and heightened levels of volatility which lack a clear direction before that occurs.   

The GBPUSD spiked higher on the rumours that Merkel would put a 5-year time limit on the Irish backstop, before falling back when the rumours were denied. Source: xStation

Debenhams collapses

In a development that has been a long time coming, Debenhams has finally fallen into the hands of lenders after rejecting an 11th hour intervention from Sports Direct. The boardroom conflict between the high-street retailers has grown increasingly bitter of late, and it appears that Debenhams have resisted the £150M offer to prevent the collapse. Stores are expected to stay open and continue to trade, but the future of the department store is highly uncertain and the fate of the company’s assets as well as that of around 25,000 employees now lies in the hands of several high street banks and US hedge funds. Unfortunately for investors this means the firm’s equity has been wiped out, while it is hard to see a long-term future for employees unless a takeover can be agreed upon with lenders likely to take any legal means to recoup as much of the debt as possible. The firm’s demise has played out over several years and Debenhams has now become yet another iconic failure of the British high street.   

Crude Oil makes fresh 2019 highs

There’s been more gains seen in the oil price at the start of the week with both Brent and WTI making new highs for the year. 2019 has seen a pretty stunning recovery in the price of crude, as the market has bounced back pretty emphatically from the rout seen during the final quarter of last year. As is often the case in market moves that last for a prolonged length of time, the main catalyst for the rally has changed during. The initial gains seen in early January seemingly began on a recovery in risk appetite due to a U-turn from the Fed before a stream of improving rhetoric on the US-China trade front in recent weeks has provided a further boost. While stock markets have paused in the past couple of sessions, Oil has continued higher with a softening in the US dollar providing much of the recent heavy lifting. Underpinning the entire move has been OPEC+ cuts, that while below the agreed upon level of compliance has still acted to reduce production while the political turmoil in Venezuela continues to weigh on supply.       

Oil has now recovered more than half of the decline seen after the large plunge at the end of last year. The 61.8% at 72.88 could be the next target for bulls while the 50% fib at 68.57 is possible support. Source: xStation