Market Drivers September 9, 2019
BoJo ignores Parliament law
Aussie recovers open gap
Nikkei 0.56% Dax 0.26%
UST 10Y 1.58%
Europe and Asia:
GBP UK GDP 0.3% vs. 0.1%
It was another rollercoaster ride for pound as the week started off more Brexit drama.
Over the weekend sources close to the PM suggested that he would ignore the current Parliament law that mandated Mr. Johnson to ask for an extension if no deal was done by the deadline. One possible scenario that was floated was to provide EU two letters – one asking for an extension and one to ignore it. However, such a ploy was immediately termed illegal by UK experts and would likely face challenges right away. Indeed some opposition leaders have called for an impeachment of the PM should he ignore the will of the Parliament something that has never occurred UK politics.
The latest maneuverings sent cable lower at the start of UK trade with pair dropping to 1.2233 at the start of London dealing only to see it rebound almost to the 1,2300 figure on news of opposition pushback to PM’s machinations. Still, the trade in the pound remains highly volatile and headline-driven even as UK data continue to show weakness. Although the latest releases came in better than expected with Manufacturing production dropping -0.6% versus -1.1% eyed while Industrial Production came in at -0.9% versus -1.1% forecast.
The immediate focus of the market will be on today’s vote for early elections which Mr, Johnson is likely to lose again and once that business is done Parliament will be on recess so some of the volatility may come out of the pair until fresh news on negotiations comes through. For now, cable continues to be bid but also capped as it remains within 1.2000 – 1.2300 range. The market maintains optimism that UK will not crash out of EU without a deal, but as the deadline gets closer that optimism will quickly wane if no progress is evident.
Elsewhere the easing of RRR rate by the Bank of China provided a modicum of support for risk in late Asia trade with Aussie reversing earlier losses as it hit fresh multi-week highs at .6862. If there are further positive headlines on US-China trade talks then the pair could take a run at the .6900 figure as the day proceeds.