May doesn’t care if the UK faces a disorderly Brexit, for her the most important part is the red lines defined by her and she is not willing to move from that. Hence, Parliament has moved one step closer to save the UK from a no-deal Brexit deal. The plan is to delay the Brexit so that the economic shock to the economy is minimum. The opposition Labour party has started to support the proposal, the deadline must be extended if May cannot negotiate a divorce agreement. The upheaval of a disastrous no-Brexit deal could bring the country to its knees.
The time is ticking and only nine weeks are left before the deadline approaches and sterling traders are paying attention this. For now, the trend remains to the upside against the dollar and the average earning index number supported the currency yesterday but the claimant count number missed the forecast. The actual number was 20.8K while the forecast was 20.1K. This kind of number makes matter more arduous for the Bank of England because, on one hand, they have a data which confirm that the labour market is tightening and they should think about normalising the interest rate but then, on the other hand, they have Brexit chaos.
Nonetheless, technically speaking, we are looking at the 1.30 mark for sterling to break against the dollar and stay above this. Only this will send a bullish signal for the markets otherwise, I think the currency can actually fall.
The global equity markets have decided to change their direction and failed to deliver on their promise- to continue to move higher. Looking at the Years to date performance of the major indices such as the S&P500 (5.03%), Nasdaq (5.80%) and the Dow Jones (4.62%) makes you think that the markets cannot continue like this so the retracement is a must. However, if you look at the 1-day percentage move for the S&P 500 which took place yesterday, it does ring some alarm bells because the index suffered from its second worst day yesterday.
The reality is that headline coming out for the past two days aren’t soothing at all, the IMF global growth downgrade has sent a nerve-wracking wave and investors have adopted a very cautious tone after this. However, if we look at the elite gathered over in Davos, listening to them makes it clear that they are concerned about the weak economic situation but certainly, no one is ready to jump off the ship. The message is that we are growing but we would like to higher growth.
