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Pun intended, let’s take a look at how our three biggest headline risks have evolved. Any fall out from our biggest risk, the trade talks in Beijing, was closely watched by markets. As the US delegation travelled back to Washington and murmurings continued in the Chinese capital, the heads of those observing were spinning. The overwhelming impression of the talks was positive, however, contained a degree of silence and secrecy. The secrecy and quietism in and of itself tells markets a lot about the talks and it’s good news! Tight lips from both sides of the talks led investors to the conclusion that progress has been made to a degree significant enough in order to deserve a coordination in the wording of their respective statements. If this suggestion is confirmed, the meeting of higher-level officials to confirm the longer-lasting arrangements will proceed in due course ahead of the late-March deadline.
In reaction to the news, the US Dollar lost considerable value as defensive demand that has pervaded for so long was unwound. The US Dollar is the underwriting instrument of most of the globe’s trade and as such receives a bid during times of trade turmoil even when the inhibition to trade involves the US itself, much to the defiance of common sense! The Pound has suffered mildly today as traders um and ah about the effect of Parliament’s amendment’s to the Prime Minister’s trade deal.
Theresa May and her government have lost two sizeable battles on the Brexit deal(s) to be voted upon next week. The first came last night, with a defeat of 303 votes to 296. The majority included 20 of May’s own Conservative back bench and former cabinet ministers. The motion to amend the finance bill would now require the government to consult Parliament in order to seek consent to raise spending in the event of a no-deal Brexit. There are two diametrically opposed effect of this deal. Positively, and perhaps overwhelmingly, the amendment reduces the perceived profitability of a no-deal Brexit, hopefully diminishing the overall probability that the government will choose to pursue one. Negatively, the defeat demonstrates the fallibility of the government’s command over the wider House, suggesting to markets the deal is destined for eventual failure.
May was defeated once again this afternoon with Parliament requiring the government, with a majority of 308 to 297 votes, to declare its Plan B to parliament in the event of Parliamentary defeat. This is a blow to parliament, reflected in weakness in the Pound this afternoon, because it enhances the benefits of a parliamentarian if they vote against May’s deal next week. Despite a short-lived rally up to 1.28 on the back of a weakening US Dollar this afternoon, the negative news at home has forced cable back to the middle of its intraday range.
Discussion and Analysis by Charles Porter
Holding on With less than a 10% probability of a cut priced into the Reserve Bank of Australia’s (RBA) latest monetary policy decision, it is unsurprising markets open today to news of a hold. The RBA adopted a lower peak rate of benchmark interest than the likes of the UK and USA with lower inflationary […]
Now that’s what I call Tariffs The title of this briefing is an homage to that (n)ever-popular publication of CDs (formerly vinyl) that seemed to be everywhere when I was growing up. Containing the ‘best’ hits of a particular year, you never seemed to be far from a ‘now that’s what I call’ CD (or […]
What is the Mar-a-Lago Accord, and should markets care? At heart, the Mar-a-Lago Accord is a proposal for President Trump to weaken the US Dollar. As we know, Trump’s typical deregulatory and risk-inducing persuasion would, all other things equal, increase demand for the US Dollar. As far as the relationship between perceived risk and the […]