News that UK PM Theresa May was deferring today’s scheduled parliament Brexit vote hit the pound hard last night but probably not as hard as if the vote had gone ahead and resulted in the widely expected loss. She will head back to the continent to ‘seek assurances’ from European leaders before probably bringing a very similar proposition back to the House of Commons in the near future. The safe haven dollar gained across the board as a result of the move with major currencies losing significant ground and the Dxy finishing the day up around 97.20, not too far from yearly highs. Equity markets had a tough day in Asia and Europe as negative investor sentiment prevailed however US markets saw a decent recovery at the end of the day with the major indices finishing in the black, once again led by the tech sector. Oil is also still under pressure as doubts on proposed productions cuts continue to weigh on the black gold, WTI is trading just north of $50/b as we move into the Asian session this morning with Brent under $60/b.
Theresa May has effectively kicked the Brexit can down the road leaving markets once again lacking certainty on the issue with the variety of different outcomes still being thrown around financial markets. We look set to now move towards the new year with the sterling market once again trading ‘Brexit Sentiment’ as fresh updates on the situation hit the news wires. Most investors agree that the risk still lays firmly on the downside in the short term for the pound with no one in the political environment seeming to be able to bring to the table a market pleasing plan short of a full return to the EU and that would entail either a fresh general election or second referendum. Experienced traders will tell you that the market very rarely moves in a straight line and with all eyes looking down there could a real risk of sharp topside rallies if progress is made, or looking to be made on Brexit and I think this combination of factors will lead to a very nervous few weeks of trading ahead for sterling market makers.
Looking ahead to today’s trading day and sentiment, as seems to be the norm, looks set to dominate flow and market direction. However, we do have some decent fundamental data releases that will draw investor attention. It’s relatively quiet in the Asian session but in the London session we have the UK jobs data due swiftly followed by the German ZEW Survey. In the New York session we have the release of the latest PPI data with the market expecting no change from last month on the headline data.