Boris hits the front, as no-deal fears drag sterling lower

Boris Johnson took an impressive lead in the first round of votes for the next Conservative leader. Meanwhile, an attack on two oil tankers is not expected to leave a lasting effect on crude prices given the supply and demand imbalance. 

• Pound capped as prospect of no-deal showdown sours sentiment
• Boris takes the lead, yet ultimate decision doesn’t come from Westminster 
• Crude gains likely to ease as tanker incident is overshadowed by supply-demand dynamics 

The pound looks at risk of another downturn as the prospect of a possible Boris Johnson led government begins to set-in. Attempts from the Labour party to rule out a no-deal Brexit have failed, and if Johnson gets into power it looks like an inevitable showdown over whether a no-deal Brexit can be forced through or whether another general election is required. For some, this vote is equally about who will be able to hold on to power later in the year if a general election is forced.  While today’s vote highlights an almost unassailable lead for Boris heading into next week, the crucial thing to remember is that the ultimate decision comes from Tory members rather than MP’s. Boris’ absence from much of the contest thus far highlights his team’s unwillingness to get caught up in the melee and risk denting his clear lead. Thus, unless we see any major shift in sentiment at the eventual TV debate, markets are likely to presume victory for Johnson, thus limiting any sterling advances. 

Crude prices volatility has been one of the key flash points for financial markets today, with the attack on two separate tankers near the Strait of Hormuz raising tension in the region. For all the finger pointing, this is essentially a warning shot that will likely to amount to little given the huge consequences of an actual full-scale conflict. Initial gains for crude are fading as markets contemplate the demand and supply environment, with the US pumping more than ever and OPEC downgrading estimates for global demand. Ultimately the US is happy to continue grabbing market share whilst driving prices lower to raise growth prospects. Meanwhile, with the US-China trade war unlikely to find a resolution anytime soon, we are likely to continue seeing demand wane as growth falters.