Geopolitics to Dominate in Data Light Week
|Trade optimism and a more dovish Fed meant that the Dow and the S&P closed Friday on higher ground. Noticeably, the Nasdaq was unable to secure a positive close as traders' desire to move into growth stocks is clearly diminishing – a renowned sign of weaker sentiment.
Whilst Trump’s comments on Friday provided optimism over progress in trade tensions with China, Mike Pence’s conflicting remarks over the weekend at an APEC meeting indicated that progress was still unlikely. Asian markets traded carefully higher overnight thanks to the Fed’s more cautious tone regarding the global economy, whilst conflicting.
This week sees a light economic calendar. This means traders will have little choice but to focus their full attention on geopolitical developments surrounding trade and Brexit.
No Getting Away from Brexit
There will be no escaping Brexit as trading begins for the new week. Brexit will dominate traders’ minds from every angle, as we wait to see whether the magic number of 48 letters has been received by Sir Graham Brady. The 1922 Committee Chairman confirmed that the number has not been reached on Sunday. This offered little condolence to the pound, which was trading lower again as the new week kicked off, pulling $1.28 into focus for a near-term target.
Theresa May continues fighting for her political life after the exodus of Brexit Secretary Dominic Raab (among other ministers) who resigned in disagreement over her Brexit deal with the EU. What happens this week is anyone’s guess, what is for sure is that this is a crucial week for Theresa May and Brexit which means it is a crucial week for the pound. We expect volatility in the pound to remain at elevated levels particularly if a vote of no confidence is called.
How A Vote of No Confidence Could Impact the Pound?
In the case of a vote of no confidence, the two possible outcomes are, one, that Theresa May wins. This would be the preferred outcome for the pound and boost sterling. However, we expect any pound gains to be capped and sterling to remain under pressure. Theresa May will still have the almighty challenge of getting Parliament to pass the Brexit deal; a task which many political analysts consider to be mathematically impossible, as things currently stand.
The second possible outcome is that Theresa May loses a vote of no confidence. We consider this outcome to be less likely. Should Theresa May lose a vote of no confidence, the pound will drop sharply, targeting $1.25 as the chances of a Brexit deal being agreed will be drastically reduced. As Theresa May pointed out throughout this weekend, a leadership battle will distract the Conservatives from the task in hand of achieving a good Brexit deal.
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