House of Commons says no to May’s Brexit deal

Summary:

• UK House of Commons voted against a May’s Brexit deal, PM was defeated by a large margin

• PM May will face a no-confidence motion today with only slim odds to be ousted

• Stock, bond and currency markets settle down, the most prominent Fed’s hawk softens its view

Higher odds for disorderly Brexit

In line with expectations the House of Commons voted 432 - 202 against a May’s Brexit deal she was negotiating with Brussels. As a result of so tremendous defeat Jeremy Corbyn, the Labour Party leader, called for a no-confidence motion against Theresa May which will take place later today. However, there are only tiny odds that the incumbent Prime Minister will be ousted as the DUP signalled on Tuesday that it would vote in favour of May. Either way, the yesterday’s rejection was the largest parliamentary loss in over a century. A government spokesman informed after the vote that cross-party discussions would begin as soon as Thursday, and that ideas being produced during these talks would need to be put to the EU. On the face of it, it could an encouraging sign which helped the pound recover quite quickly when the vote’s outcome was known. Nevertheless, before these talks kick off Theresa May wants to know whether she has still confidence in her government. In turn, UK Chancellor of the Exchequer Philip Hammond came up with an idea to delay the departure beyond the March 29 deadline. However, the UK has to have a clear blueprint before the EU grants such an extension, Hammond added. Jean-Claude Juncker, President of the EU Commission, urged the UK to clarify its intentions as soon as possible adding that time is almost up. The pound was trading quite chaotically during the vote. First, it was losing momentum prior to the vote, but then it bounced back notably and erased its all losses. As a consequence, it keeps hovering around 1.2850 this morning in anticipation of the no-confidence motion against Theresa May this evening.

The GBPUSD wobbled on Tuesday evening falling to below 1.27 in order to bounce sharply to above 1.2880 thereafter. The short-term resistance might be localized nearby 1.2930. Keep in mind that the pound remains one of the most undervalued G10 currencies. Source: xStation5

Little response and Fed’s George

A markets’ response to the Brexit vote was rather subdued with stocks on Wall Street rising steadily during the day. The NASDAQ (US100) was once again the best performing major index rising as much as 1.7%. The SP500 (US500) was up 1.1% while the Dow Jones (US30) gained 0.6%. In Asia we have had quite a lacklustre session with Chinese indices trading marginally higher and the Japanese NIKKEI (JAP225) falling 0.5%. On the currency front, the US dollar is trading flat this morning after surging against the shared currency yesterday, whereas the US 10Y yield keeps on moving around 2.71%. Note that the dollar’s performance was not disrupted by a speech from Fed’s Esther George, one of the most hawkish member in the Federal Reserve. She said that “after two years of uninterrupted quarterly interest rate hikes, borrowing costs are near a neutral level where they are no longer boosting nor braking growth.” George added that “for now, it seems to me that we should proceed with caution and be patient as we approach our destination.” She suggested that “a pause in the normalization process would give us time to assess if the economy is responding as expected with a slowing of growth to a pace that is sustainable over the longer run.” Given the fact that George is a voting member this year her words, shared by Jerome Powell and other member too, could matter when the Fed meets at the end of this month. While we stick to our expectations that the US economy will be losing traction, the Fed could be still able to deliver two more rate hikes this year and these moves should end this cycle of monetary tightening.

The SP500 (US500) broke through 2600 points on Tuesday climbing the highest since mid-December. However, it does not mean that bulls have already an even road to higher levels as they have to deal with the 50DMA. Source: xStation5

In the other news:

• Japanese core machine orders was flat on a monthly basis on November and up 0.8% YoY, while PPI for December increased 1.5% YoY (-0.6% MoM)

• China’s new home prices rose 0.8% MoM and 9.7% YoY in December, producing a slightly slower pace of monthly growth compared with November