May Survives

PM May heads to Brussels for further talks after winning no confidence vote.

Previous Day's Market Highlights

Once again, sterling was driven by political news flow on Wednesday with the pound recovering by over 1% across the board, pushing sterling to its best day in six weeks. This came as PM May vowed to fight a no confidence vote and rumours grew throughout the day of May having the support of enough Conservative MPs to triumph. The market reaction was subdued when this news was confirmed as the news was already priced in, with May surviving the ballot by 200 votes to 117. However, May has paid a high price for her victory after telling MPs that she would not lead the party into the next general election in 2022.
On the data front, it was a quiet calendar with the only highlight being US CPI inflation figures for November. Both headline and core CPI increased at 2.2% on a year-over-year basis, although the headline figure decreased by 0.3% compared to October due to the recent tumble in oil prices. Despite this, both measures remain above the Fed’s 2% target hence a hike at next week’s FOMC meeting is now around 80% priced into the market.
Elsewhere, crude prices rose by around 0.5% due to a drawdown in US inventories. Brent settled around $60.46bbl with OPEC supply curbs still underpinning the market. Finally, equity markets in Europe and the US all gained ground, with most major indices adding around 1% on optimism surrounding the ongoing Sino-US trade conflict.

Currency Pairing 08:00 Today Vs 08:00 Yesterday Four-Week High Four-Week Low % Change
GBP/EUR 1.1120 1.1484 1.1004 4.18%
GBP/USD 1.2658 1.3030 1.2491 4.14%
EUR/USD 1.1383 1.1472 1.1267 1.79%
GBP/AUD 1.7475 1.7958 1.7208 4.18%
GBP/NZD 1.8411 1.9147 1.8183 5.03%
GBP/CAD 1.6898 1.7228 1.6722 2.94%

Today's Market Highlights

After PM May survived yesterday’s vote of no confidence, she will today head to Brussels for an EU summit. Market participants will be looking once again for hints of the PM being given the assurances that she seeks surrounding the Irish backstop arrangement which would make the deal more palatable to Parliament. Despite this, it is currently looking unlikely that the EU will make any concessions at this stage, especially as May’s efforts so far, after meeting the Dutch and German governments on Tuesday, have been fruitless. The UK are still looking for a legal assurance of the backstop being temporary, however the EU are currently unwilling to re-open the withdrawal deal.
The main macroeconomic highlight will be the European Central Bank meeting this afternoon where, despite not being forecast to change interest rates, the ECB are set to announce the end of their crisis-era QE programme. As this move is widely expected, investors will be paying close attention to President Draghi’s press conference for hints as to the timing of the ECB’s first rate hike, currently expected to be in summer 2019. The Swiss National Bank also meet this morning, however are not expected to make any changes to monetary policy today or for the foreseeable future. The SNB are likely to take their lead from the ECB and only raise rates once Draghi & Co have done so.
Other economic data of note includes CPI inflation figures from Germany and France as well as weekly US unemployment claims, forecast to decrease slightly to 225k.

Today's Economic Calendar

Time Currency Release Consensus Previous
8:30am CHF SNB Rate Decision -0.75% -0.75%
12:45pm EUR ECB Rate Decision (Refi Rate) 0.0% 0.0%
1:30pm EUR ECB Press Conference
7:00pm USD Federal Budget Balance -193.5bln -101bln