Pound pulls back ahead of Brexit vote II

There’s been some fairly broad selling seen in the pound at the start of the new week, with sterling pulling back against all of its peers. The dip seems to be more a case of the market paring its recent gains after a strong run higher of late rather than a clear reversal as once more traders are keenly awaiting a parliamentary vote on the PM’s latest deal. After snapping a 4-week winning streak, the FTSE is little changed this morning, with the market hovering around the 6800 level.

The pound is drifting lower against all of its peers this morning with the largest drop seen in the GBP/JPY and GBP/NZD. Source: xStation

Pressure mounts on backstop changes

After suffering the heaviest ever parliamentary defeat for government earlier this month, PM May will return to the Commons tomorrow evening with MPs set to vote on her “plan B” which will likely look remarkably similar to “plan A.” At the risk of stating the obvious, given the huge margin of defeat last time out, the PM clearly faces an uphill battle to get the bill passed this time around, but that may not be the biggest issue here. Firstly, any clear improvement on the 202 votes in favour will raise hopes for May that the PM can return for a 4th, 5th or even 6th attempt to gain the required support and there are some suggestions that she can make significant strides amongst the eurosceptic MPs in her party if a resolution can be found on the Irish border issue. Sir Graham Brady, the chairman of the backbench 1922 committee has said that a legally binding agreement which provides guarantees on the backstop would see Conservative Eurosceptics rally behind the PM’s deal.

The main vote could well not be the main issue here, with several MPs tabling amendments which if passed could change the way the government handles the whole Brexit process. The most notable is the amendment from Labour’s Yvette Cooper that would require the government to extend Article 50 - by up to 9 months and buy additional time to secure parliamentary support. These amendments and the notion that legally binding guarantees on the backstop could make significant changes from the UK’s point of view, but it is worth pointing out that they would also require approval from the EU, with the bloc still seemingly reluctant to move on the present deal.   

Ocado jumps on reports of M&S deal

The best performer on the FTSE 100 is Ocado, with shares in the online grocer rising over 4% on reports that the firm are in talks over a possible delivery partnership with Marks & Spencer. The stock of M&S is also moving higher and up by almost 2% as investors are seemingly looking at the benefits and synergies that such an arrangement could bring. Ocado has an existing arrangement with Waitrose that is set to expire next year, and the proposal could well be along similar lines. Ocado has recently signed similar deals with Morrisons and US chain Kroger.

Shares in Ocado have moved up to their highest level in almost 4 months this morning with the stock once more trading near the £10.00 handle. After treading water in the last quarter of 2018 the share price is now back above the 200 day SMA (yellow line) and remains in a longer term uptrend. Source: xStation  

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The main value add from Ocado is the company’s expertise in its automated warehouses to pack and deliver goods whereas the supermarkets provide a wider range of products and greater economies of scale. Ocado shares have been a real success over the past 12 months, with the stock making sizable gains and breaking into the FTSE 100 last Summer and the kind of arrangements being touted with M&S are a good example of the disruptive influence the firm is having on its larger competitors who have found the going tough in recent years.