Stocks higher as MPs prepare for Brexit vote
Profit taking over the last couple of days doesn’t appear to have taken its toll on investors, with futures back in the green on Tuesday as attention temporarily shifts across the pond.
Brexit may be more of a domestic issue for the UK, with the potential consequences for the rest of the EU less severe, but it’s safe to say that today it will be taking the lion’s share of the attention, as far as markets are concerned. The vote, which follows five days of debates in parliament, is scheduled to take place around 7pm in the UK and will likely be a source of significant volatility for the pound in particular.
Theresa May would appear to stand little chance of getting her deal through at the first time of asking which makes the margin of her defeat the key determinant in how the markets will respond. I think it’s safe to say that a shock victory for May and her deal would be very positive for the pound, both because of the softer Brexit it would ensure and the uncertainty and risk of no deal Brexit that would be removed. They chances of that happening appear very slim though today.
We’ve seen some decent gains in the pound over the last 48 hours or so on the back of the assurances provided by the EU and suggestions that some eurosceptics are planning to back her deal. This leaves the pound potentially vulnerable to buy the rumour, sell the fact moves, if the vote goes roughly as expected. This would likely involve defeat but not the devastating and humiliating kind that May fears.
Ultimately, defeat today doesn’t really matter and doesn’t kill May’s deal. Rather, it’s a box ticking process that begins puts in motion other options being considered, including a no confidence vote and second referendum. Only once these options have been exhausted will we get a real idea of whether May’s deal will pass, but that will take time, which could mean an extension to exit date.
Oil higher alongside improvement in risk appetite
Oil is making steady moves higher again on Tuesday as an improvement in overall risk appetite takes further pressure off prices. The output cut agreed between OPEC+ is expected to support prices in longer term but they came under further pressure at the back end of last year as markets tumbled and global growth fears became heightened.
The sell-off was likely exacerbated by the time of year on which it fell which would explain why we’re seeing a bounce, alongside that in equity markets. Over the coming weeks and months, I expect downside in oil will be limited unless we see a surprising lack of compliance among participating producers, which was not the case previously.
