B-Day

Sterling rallies after the Prime Minister secures late-night Brexit concessions from the EU ahead of today’s key meaningful vote.

Previous Day's Market Highlights

Sterling gained more than 2% on Monday, as Brexit jitters gave way to optimism after reports that the Prime Minister had secured “legally binding” changes to the Withdrawal Agreement in late-night negotiations with European Commission President Juncker. These changes reportedly amount to a “legally binding joint instrument” to clarify arrangements surrounding the Irish backstop as well as a “joint statement” committing to finding an alternative to the backstop by the end of 2020. Sterling’s rally came as markets believed the changes increased the likelihood of a deal being passed by Parliament, ending the current political uncertainty and avoiding a cliff-edge, ‘no-deal’ exit from the EU. The pound recovered from a fall in early Asia trading to break to a high of $1.3290 and €1.1797 - the latter being a year-to-date high, and the highest level for the pairing since May 2017.

Elsewhere, January retail sales figures from the US beat expectations, though the dollar’s reaction was muted owing to downward revisions to December’s figures. Headline retail sales increased at 0.2% on a month-on-month basis, with the core measure increasing by 0.9% on the same basis, as both data points bounced back from their biggest drop since 2009. However, despite December’s figure being revised downwards to a decrease of 1.6% on a month-on-month basis, the report will have helped to calm fears in some circles after a mixed jobs report last week. At the end of London trading, the dollar was largely unchanged, with the dollar index nudging lower by 0.2%.

Other majors were similarly quiet, with the euro trading flat as a lack of economic data and central bank speakers left market participants with little food for thought. Meanwhile, the antipodean currencies gained modestly as global risk sentiment improved, with both the Aussie and Kiwi dollars adding around 0.3%. In contrast, the yen and Swiss franc traded modestly weaker as investors rotated away from safe-havens.

Away from FX, European equity markets recorded strong gains with banking stocks leading the way on talk of a long-mooted merger between Deutsche and Commerzbank potentially edging closer. The pan-Europan Stoxx 600 gained 0.75% over the day, with London’s FTSE 100 adding 0.3%. In the US, markets rebounded from 5 straight sessions of losses, with the benchmark S&P 500 gaining almost 1.5%. Finally, crude oil prices also increased as market participants were reassured by Saudi Arabia’s continued compliance with OPEC production cuts. Both Brent and WTI gained more than 1.5%.

Currency Pairing 08:00 Today Vs 08:00 Yesterday Four-Week High Four-Week Low % Change
GBP/EUR 1.1739 1.1797 1.1312 4.11%
GBP/USD 1.3221 1.3350 1.2773 4.32%
EUR/USD 1.1266 1.1419 1.1176 1.63%
GBP/AUD 1.8700 1.8780 1.7990 4.21%
GBP/NZD 1.9330 1.9542 1.8660 4.51%
GBP/CAD 1.7727 1.7795 1.6973 4.23%

Today's Market Highlights

Today’s focus will lie with the 2nd Meaningful Vote on the Brexit Withdrawal Agreement, with there now being a chance of the deal being passed by the commons. The Prime Minister is due to open the debate this afternoon, with a vote on the deal due at around 7 o’clock this evening - though any amendments to the motion will be put to a vote first. After losing the previous vote by a historic margin of 230 MPs, the Prime Minister will be hoping that the concessions won in Brussels result in some MPs voting for her deal. Key to this will be 2 points. Firstly, the Attorney General is due to publish his legal opinion on the changes before the vote which will aid Parliament’s understanding of the concessions. Secondly, the eurosceptic Conservative ERG movement and the Government’s partners, the DUP, have yet to decide whether they will be backing the deal. Their votes will be key to the agreement’s passing.

Sterling would likely head skyward should a deal be approved by Parliament this evening, however approval of the deal is far from guaranteed. On the other hand, a rejection of the deal could see market optimism quickly dissipate. If the deal were to be rejected, Parliament would have 2 further votes over the coming days to decide on the way forward - either a ‘no-deal’ Brexit or an extension of Article 50. It is worth noting that President Juncker has stated there will be no “third chance” to make a deal, adding to the importance of today’s vote.

Away from Brexit, market participants will have plenty of economic data to mull over. The main highlight will come from the US in the shape of CPI inflation figures for February. Expectations are for headline inflation to increase at 1.6% on a year-on-year basis with the less volatile core measure set to hold steady at 2.2% on a year-on-year basis. The release is likely to be closely examined for any impact on the Fed’s policy outlook ahead of their meeting next Wednesday. Other areas of focus on Tuesday will be the release of January GDP figures from the UK, expected to show growth of 0.2% on a month-on-month basis, as well as machinery orders from Japan and the US auctioning 10-year Treasury bonds. There is no significant economic data due from the eurozone.

Finally, a couple of central bank speakers are due, with markets set to hear from the ECB’s Lautenschlager and the Fed’s Brainard - with any comments from the latter on the pace of monetary policy tightening going forward likely to command significant attention.

Today's Economic Calendar

Time Currency Release Consensus Previous
09:30 GBP GDP (m/m) 0.2% -0.4%
09:30 GBP Manufacturing Production (m/m) 0.0% -0.7%
12:30 USD CPI (y/y) 1.6% 1.6%
12:30 USD Core CPI (y/y) 2.2% 2.2%
Approx. 19:00 GBP Parliamentary Meaningful Vote on Brexit Withdrawal Agreement Reject