GBP lower as PM’s future hangs in the balance

The pound has begun the week on the back foot as speculation mounts that UK PM Theresa May could face a vote of no confidence in just a matter of days. The declines are fairly measured at present but the added uncertainty of the PM being ousted at what is a critical time in Brexit negotiations could cause a swoon lower - particularly if she is replaced by former Brexit secretary David Davis who would likely push for a “harder” separation. Backbench MPs have demanded that May appears before the 1922 Committee on Wednesday night with unrest growing amongst the Tories after reports last week the PM is considering an extension to the transition period. There are believed to be close to 46 letters of no confidence already submitted to the influential 1922 Committee, just short of the 48 needed to trigger a leadership contest.

While it seems like the sharks are circling Theresa May once more and the pressure on the PM from her own party has never been greater with support from all sides seemingly in decline, even her fiercest critics are aware that ousting her could backfire. The danger as far as they are concerned is that the most likely replacement as a caretaker PM, David Davis, may still fail to unify the party and unless they can come closer to a united front then they risk opening the door for Labour. Along these lines while 48 letters are all that is technically needed for a leadership contest, it could well take a greater level of support for one to prove successful, and MPs will no doubt be mindful of this going forward. The pound remains above the $1.30 level but is not far from its lowest level in a fortnight and political developments in the coming days remains by far and away the biggest factor that will drive the currency.

Chinese stocks post biggest jump since 2015

A rally of over 4% overnight for the CSI 300 index which contains companies listed on the Shanghai and Shenzhen stock exchanges represents the biggest one-day jump in almost 3 years as investors look to recoup some of the recent declines. The market has been in a fairly prolonged slump and even after today’s gains the index could be set for its steepest monthly drop since the start of 2016. The catalyst for the rise appears to be some soothing remarks from key public bodies on Friday with China’s central bank, the banking and insurance regulator and the securities watchdog all delivering upbeat comments to state media. They stated their belief that the stock market slump was not a fair reflection of the country’s economic health and that the authorities stand ready to help the markets should they deem it necessary. Whether today’s trade represents a key turning point or just a dead cat bounce in the downtrend remains to be seen, but investors will no doubt take heart from the large rise and hope that there is more to come. These impact of gains can also be seen here in London, with mining shares at the forefront of a push higher in the FTSE with Fresnillo, Antofagasta Holdings and Glencore all higher by more than 2%.

Ryanair shares moving higher despite fall in profits

Shares in Ryanair have gained almost 5% this morning despite the budget airline announcing a fall in profits in its latest update. Post-tax profits fell by 7% to £1.1B for the key April to September period with strikes, cheaper fares and rising fuel costs all eating into the bottom line. Having said that, the report on the whole is actually better than many expected with revenues rising by 8% compared to the same period last year and passenger number up 6% to 76.6M. Given the recent slide in the stock, which is down by roughly a third in the past year, and low expectations heading into this earnings report, the announcement has caused a bit of a relief rally. Sizable challenges remain in the longer term with further falls in air fare, a higher oil price and the impact of Brexit developments all potential banana skins. Having said that, Ryanair is holding up fairly well compared to its main rivals, with the stock lower by 11% on total returns over the last 3 years, whereas Easyjet is down 27% and Flybe 81% over the same period.