Pound slides as Brexit tensions rise; Oil gains as inventories fall

Summary:

• GBP swoons as Boris suspends parliament

• Oil extends gains after massive inventory drawdown

• Stocks recover from soft start

• DE30: Deutsche Bank considers most cost-cutting

There was some selling seen in the pound this morning after a couple of recent developments on the Brexit front with an acrimonious outcome looking more likely by the day. First off, reports that Parliament could be suspended in the coming days hit the wires with rumours swirling around Westminster that a privy council are set to head to Balmoral to meet the Queen and make the request. Shortly afterwards, speculation grew further when additional reports suggested this means that Boris Johnson is planning on beginning a new session of parliament some 5 weeks later than previously thought, with a fresh Queen’s speech on or around 14th October. This was later confirmed and means those trying to stop the government pursuing a no-deal Brexit are facing an ever tighter timeline.

This seems like a pre-emptive strike from Boris against those seeking to block a no-deal Brexit and once more it seems that the opposition are in danger of fluffing a big opportunity to have an impact. If the government is successful in this then a no-deal Brexit wouldn’t be taken off the table until the 11th hour at the earliest and this keeps a significant downside risk to the pound in play. It is also worth pointing out that this reduces the chances of getting a deal passed through parliament with the timescale for any bill to pass greatly reduced. The Pound fell as much as 1% against both the USD and Euro although it has regained its footing somewhat as the day wore on. 

The weekly crude oil inventories showed a large double-digit drawdown, supporting the large drop seen in last night’s API and sending the price of Oil up to its highest level of the week. Its now 2 consecutive drawdowns for this data point after last weeks decline of 2.7M. The print of -10.0M was well below the -2.9M consensus forecast and not far from the private reading of -11.1M seen in the API.

Stocks were trading in the red on the time of the US open with the Dax one of the worst hit and lower by more than 1%. However, there’s been something of a recovery since and at the time of writing the S&P500 is back near its highest level of the week. As we approach the end of August it is worthwhile being on the lookout for potential month-end flows. There can often be moves that are otherwise unexplained in the last few trading sessions of the month, caused by funds repositioning there portfolios. 

Individual company news from the Dax was as follows: 

• It seems that each and every week investors are getting new reports concerning cost-cutting measures discussed at the Deutsche Bank (DBK.DE). According to a recent Bloomberg report, the German lender is considering centralizing its retail headquarters. Right now the Deutsche Bank has retail headquarters spread across a few German cities. Frankfurt was proposed as the head office of retail operations. 

• Shareholders of Cypress Semiconductor (CY.US) gave green light for planned takeover of the company by the German Infineon Technologies (IFX.DE).

• MTU Aero Engines (MTX.DE) can be found among the worst performing stocks in the MDAX index on Wednesday morning. The company received a downgrade at HSBC. The Bank lowered recommendation for the stock from “buy” to “hold” and set a price target of €253.