The financial markets experienced more volatility across the products during yesterday’s trading as geo-political factors and trade issues continued to exert their influence on investor confidence. Equity markets rallied later in the day on the possibility of a trade resolution between the US and China gained ground with the US indices closing well in the black. The biggest moves hit the UK markets with the Brexit saga once again experiencing a sharp turn around as the government experienced a wave of ministerial resignations on the back of the PM’s proposed Brexit deal, most notably the Brexit Secretary. Cable dropped nearly 300 pips on the day and EurGbp jumped over 200 pips with sterling trading at it’s most volatile level since 2016. Earlier in the day the Aussie had experienced a boost after stronger than expected employment data hit the market.
The Brexit ordeal continues to twist and turn on a daily basis and the ongoing turmoil within the Tory party leadership is certainly not making the process of the divorce from Europe an easy one. The Prime Ministers position once again is looking fragile, however she pushed through a similar situation after her Chequers weekend in the not so distant past and her latest press conference indicated that she is prepared to do the same this time as well. Financial markets are rightly concerned with the developments and are looking for certainty on the issue, at present the one certainty is that we will see further volatility across sterling products in the next few trading sessions and into next week. Further downside is on the cards if there is a concrete challenge to Theresa May’s leadership and the likelihood of a fresh referendum or elections. If the does PM manage to push through any challenge and get her deal through to the next stage and present it to parliament, then a strong relief rally will ensue.
Looking ahead to today’s trading and it’s relatively thin on the ground in terms of fundamental economic data releases so expect the market to continue to trade in line with investor sentiment. With that in mind expect the Asian markets to start on the front foot after a strong US session, whilst traders will continue to monitor the news wires for anything new that could change that direction. The London session will once again be dominated with anything new on the Brexit issue and expect further swings in the sterling as the day progresses. ECB President Draghi is speaking in Frankfurt and this should draw some focus over to the Euro. The New York session has little in the way of data releases so expect sentiment and news catalyst to once again drive the markets into the weekend.