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D-Day for May as Commons set to vote down Brexit deal

By Jake Trask

UK Prime Minister, Theresa May’s Brexit withdrawal deal finally heads to the House of Commons to be voted on around one month after the first vote on the proposal was postponed because May was set for a heavy defeat. Fast forward one month and May is still set for a heavy defeat however we are now ever closer to leaving the EU on the 29th March and the limited time to get a deal sorted is now pressing heavily on MPs. The spread of defeat is what will move sterling this evening. A defeat of around 200 votes could see sterling wobble this however something closer to 100 could be supportive of the pound and could lead to May heading back to Brussels to get further assurances from the EU in an effort to get it done at the second time of asking. At the same time we are likely to get a vote of no confidence in the government from Labour leader, Jeremy Corbyn which would need to be contested. We may also see amendments voted on which give more power to backbench MPs over Brexit as well an amendment tabled at ensuring the UK doesn’t leave without a deal. Given the myriad permutations the one thing that seems more and more likely is that triggering Article 50 is likely to be delayed which should add support to the pound in the short to medium term. GBP/USD is just below 1.29 at the time of writing with all eyes focused on the vote which is scheduled sometime after 7pm.

The US government shutdown continues in the States with no end in sight to the dispute which has now been rumbling on for 25 days. The way the shutdown affects different government departments was highlighted at the White House yesterday as Donald Trump ordered “McDonalds, Wendys, Burger King with some pizza” as he hosted Clemson University football team to celebrate their victory in the College Football Playoff National Championship. Staff absences at the White House meant there wasn’t enough chefs to cook the number of meals needed. In a press conference earlier in the day Trump insisted there was progress being made with regards to the China trade dispute and angrily denied accusations made in a Washington Post article that he had worked as a Russian agent. US data kicks off today with PPI numbers due at lunchtime. We also have Federal Open Market Committee voting member Esther George due to speak tonight. USD/JPY is back up to 108.65 as markets enjoy a more risk-on day. EUR/USD remains around 1.1460.

Ongoing political and economic concerns continue to weigh on the euro as ructions in Greece over a dispute with its neighbor Macedonia look like they could force a snap election. France has ongoing political woes with its “gilets jaune” protests testing French President, Emmanuel Macrons mettle. Economically it’s looking like Germany and Italy could have been shown to slip into technical recession for the second half of 2018 when Q4 GDP numbers are published early next month. Both countries have been affected by the ongoing US/China trade dispute with output slipping as demand from China begins to wane. With this weighing over the bloc all member countries will be hoping an agreement between the US and China can be found sooner rather than later to reinvigorate confidence within the EZ. European Central Bank chief, Mario Draghi is due to speak later today in Strasbourg so any comments he has on the health of the Eurozone and monetary policy should move the euro. GBP/EUR trades at 1.1236.

With a more risk-on feel permeating global markets AUD/USD has reclaimed the .72 handle during the Asian session however is slipping back towards the big number. China earlier today confirmed another half percent cut to banks reserve ratio requirements (the amount of cash they have to keep on their balance sheet) freeing up liquidity for the domestic economy. Another half percent reduction is due soon the Peoples Bank of China confirmed which has helped stocks and therefore the Aussie push higher. Tonight we see the latest Westpac Consumer Sentiment survey with holders of the Aussie hoping for an improvement in last month’s 0.1% uptick in the index. GBP/AUD trades at 1.7865.

Brent Crude Oil has slipped back under $60pb as the rally seen year-to-date has rapidly petered out on global concern trades. It was looking like a move below $59pb was on the cards however it appears the boost in Chinese liquidity was enough to support the world’s benchmark from further falls. USD/CAD continues its topsy-turvy ride of late rising around one cent in the past 24 hours. There is no data from Canada for the rest of the week when CPI numbers are due. GBP/CAD trades at 1.7075.

NZD/USD has risen then fallen away from .6850 overnight. Its back down to .6825 at present with the risk on environment starting to moderate a little as we head into the European session. As stated yesterday there is little news from NZ this week so US/China/trade and Brexit will likely move risk assets such as the kiwi. GBP/NZD sits at 1.8835.