Another Crushing Defeat

Sterling falls after the Brexit Withdrawal Agreement is rejected again ahead of today's vote on leaving without a deal.

Previous Day's Market Highlights

Sterling fell by more than 1% on Tuesday after the Prime Minister suffered another defeat on the Brexit Withdrawal Agreement in the second meaningful vote by a margin of 149 MPs - slimmer than the previous vote, but still a crushing defeat. The majority of the pound’s fall came before the vote, as markets priced in a negative outcome after the eurosceptic ERG and Northern Irish DUP asserted that they could not vote for the deal due to the UK-EU concessions not being legally binding. The Attorney General’s legal verdict sparked a sell-off in the pound, which saw sterling erase all of its gains from when the concessions were achieved. After the vote, the pound did pare some of its losses for the day, with market participants possibly reassured that the government would stick to its original plan (see below) rather than hastily shifting gears to another way forward. Over the course of the day, the pound fell 1.3% against the dollar and 1.6% against the euro. 
 
Elsewhere, a glimmer of good news did emerge from the UK, with monthly GDP figures showing the UK economy growing 0.5% in January - the biggest increase since 2016, though the pound was unmoved by the data. In contrast, data was poorer from the US with both headline and core CPI inflation measures missing expectations. Headline inflation fell to 1.5% on a year-on-year basis in February, with core inflation falling to 2.1% on the same basis. The moderation in inflation is likely to keep the Federal Reserve on pause, with policymakers having little reason to hike rates at present. The dollar was unchanged over the day. 
 
Other majors gained ground against the dollar, with the euro adding around 0.4% despite a lack of economic data or speakers. The broad based euro strength was in evidence throughout the day, with the announcement that the ECB’s new long-term funding for banks, TLTRO 3, is unlikely to be as generous as the previous round and thus providing tighter monetary conditions, possibly underpinning the single currency. Once again, the antipodean currencies also gained as risk sentiment continued to improve, the Australian and New Zealand dollars both added more than 0.4%.

Away from FX, european equity markets closed unchanged, though the UK’s FTSE 100 edged up modestly after the fall in the pound. Across the pond, US markets gained with the bechmark S&P 500 adding 0.3%. Finally, oil prices were underpinned after news that Saudi Arabia would be voluntarily cutting supply. Benchmark Brent crude gained 0.4%.

Currency Pairing 08:00 Today Vs 08:00 Yesterday Four-Week High Four-Week Low % Change
GBP/EUR 1.1630 1.1797 1.1312 4.11%
GBP/USD 1.3130 1.3350 1.2773 4.32%
EUR/USD 1.1285 1.1419 1.1176 1.63%
GBP/AUD 1.8618 1.8780 1.7990 4.21%
GBP/NZD 1.9217 1.9542 1.8660 4.51%
GBP/CAD 1.7545 1.7795 1.6973 4.62%

Today's Market Highlights

Attention today will once again focus on the House of Commons, with two major events scheduled. Firstly, this evening, MPs will vote on whether to proceed with exiting the EU without a deal after the Withdrawal Agreement was defeated yesterday. It is highly likely that the vote will fail, with Parliament having already expressed its will to avoid leaving the bloc without an agreement, however such an outcome cannot be ruled out and would likely be catastrophic for the pound. Focus will also be on any amendments to the motion, with MPs from all parties likely to table amendments attempting to gain approval for their preferred way forward with Brexit. The opposition Labour party are likely to table a vote on Brexit while staying in a customs union with the EU, with other amendments ranging from an extension to Article 50 to a 2nd referendum also likely. Assuming that this evening’s vote fails, MPs will vote on Thursday on whether to extend the negotiating period with the EU. 
 
Parliament’s second major event will be the Chancellor’s Spring Statement. Though not usually a major market mover, with any policy announcements typically domestically focussed, investors will be paying keen attention to both revised growth forecasts for the UK economy as well as any mention of the economic impacts of Brexit. 
 
On the data front, the calendars from the eurozone and US are busy with tier 2 data. The main point from the eurozone will be industrial production figures for January, expected to bounce back into positive territory. The data will be closely watched as fears of an economic slowdown across the euro-area continue to mount. In the US, attention will likely fall with the latest durable goods orders figure, a useful leading indicator of production and economic activity, as well as the latest producer price inflation figures.

Finally, markets will hear from a couple of ECB policymakers, with both Coeuré and Mersch due to speak. The Federal Reserve have now entered their blackout period ahead of next week’s meeting, hence their speaking calendar will be empty for the remainder of the week.

Today's Economic Calendar

Time Currency Release Consensus Previous
10:00 EUR Industrial Production (m/m) 1.0% -0.9%
12:30 USD PPI (y/y) 1.9% 2.0%
12:30 USD Core PPI (y/y) 2.6% 2.6%
12:30 USD Durable Goods Orders (Jan) -0.5% 1.2%
Approx. 19:00 GBP Parliamentary Vote on Leaving European Union with No Deal