The End of the Road For May?

Resignations and leadership challenges, just another day in the life of Theresa May

It’s been a crazy start to trading already this morning and with the Brexit headlines likely to continue throughout the day, I don’t expect that to change.

What was meant to be a day of celebration for Theresa May after she received backing from her cabinet for the Brexit deal could quickly turn into a day of hell. Dominic Raab has got the ball rolling this morning by tendering his resignation in protest against the deal and there is plenty of speculation that more resignations will follow. May has survived resignations before but coming on the back of her final deal, this could be far more damaging if others walk as well.

More worrying could be reports that enough letters may have been collected to trigger a leadership challenge. There’s no guarantee this would be successful but you have to think that there is at least a belief that there’s enough support. This was never going to be an easy few weeks for May but with an increasing number of people and groups lining up in opposition against her deal, it could well be the end of the road for her.

GBP plunging on reports that more resignations will follow putting Brexit deal at risk

The pound is coming under considerable pressure in response to the resignation and a potential leadership challenge, plunging around 1.5% against the dollar, euro and yen and looking vulnerable to further declines. The old saying that it never rains but it pours couldn’t be more true this morning, with the October retail sales data providing the icing on the cake, recording a second consecutive decline and falling well short of expectations.

I don’t expect any easing up in sterling volatility today, with the resignations potentially coming thick and fast. Esther McVey has already added her name to the list of ministers resigning and there are reports that many more could follow, which will just pile further pressure on the currency and the Prime Minister. If the pound breaks 1.27 against the dollar, things could get very messy indeed.   

US data and Fed speak also in focus

In the US, while much of the focus will be on events this side of the pond, there’s also plenty for traders there to focus on. Jerome Powell’s comments on Wednesday didn’t really shed any further light on interest rate expectations in light of the recent market volatility, although he did allude to the fact that the central bank does keep an eye on it. I think a December hike is all but guaranteed regardless and they may then offer some updated views on interest rates next year, alongside new forecasts. I therefore don’t expect much from Powell’s comments today that traders will get too excited about.

Oil lower again on more inventory builds

Oil is trading lower again on Thursday after a brief bounce in the middle of the week as we await the latest inventory figures from EIA. API reported another huge build on Wednesday which just further feeds the bearish sentiment right now and confirmation of this today could be the trigger for more downside, despite OPEC’s best efforts to provide verbal support. Actions speak louder than words and OPEC+ will have to offer a significant output cut at the meeting next month if they want to halt the decline in prices.