Britain’s Groundhog Day?
It has been a busy week in the House of Commons as the deadline set by the EU for the UK’s exit from the EU is approaching at lightning speed. UK lawmakers will be voting on Theresa May’s Brexit plan for the third time this year, on January 15th and on March 12th. Is March 29th gonna be another failure. Theresa May took actions to maximise its chances as today’s deal is a trimmed version of the two previous ones. MPS will be only voting on the withdrawal agreement and not on the future relationship between the United Kingdom and the European Union. This would allow focusing on which kind of departure the UK wants, while leaving the future UK-EU relationship discussion for another day. It may be a risky bet as it maintain the uncertainty on the main important matter: how the UK be treated? However, it has been said that a bird in the hand is worth two in the bush.
Nevertheless, we do not believe this strategy will work, meaning that MPs will vote “no” for a third straight time. Therefore, the pound sterling should be heading further south. GBP/USD should find a solid support at 1.2949 (low from March 10th). If broken the low from February 14th at 1.2773 would be the next support. On the other hand, we anticipate that in case of a “yes” vote, the upside in the pound is quite limited the main questions would remain on the table.
Emerging markets murky
A US-China trade deal is close. Adherence to the spirit of the deal will be difficult; the countries have completely different economic systems that will not converge by ending punitive tariffs and buying more planes. Most appreciation of CNY has already occurred. When a deal is signed, markets will refocus on weak economic data. Chinese equities will react positively as will nearby currencies, AUD, THB and IDR. In Turkey, issues with TRY are troubling. The outlook for emerging markets is already shaky. Equities are up, but central banks are cutting economic forecasts. They can’t both be right. Eastern European currencies such as HUF and PLN will come under selling pressure.
