Market Drivers August 28, 2019
Pound drops 1% on fear that Johnson will suspend Parliament
No confidence risk rises
Nikkei 0.11% Dax -0.53%
UST 10Y 1.469%
Europe and Asia:
Cable was rocked today dropping as much as 1% in morning London dealing after Boris Johnson attempted a political maneuver to effectively suspend the government until October 14th.
Mr. Johnson argued that the move – which would not allow Parliament to return until Queen’s speech on that date – was ostensibly about working through in the domestic agenda but the primary effect was to cut off any attempts by MPs who oppose the no-deal Brexit to pass any legislation that would hamper PM’s actions.
Several analysts have pointed out that this action will almost certainly result in a no-confidence vote and will, therefore, cause early elections. One of the scenarios bandied about is that even under a no-confidence vote Mr. Johnson will dissolve Parliament and simply hold an election between Nov 1 – 5 past the Brexit deadline thus effectively forcing a default Brexit. Such a move, however, is almost certain to find challenges and at a very minimum is likely to see article 50 suspended for another 6 months thus providing an extension to negotiations.
Still, given the rapidly changing dynamics of political maneuvering and the very short timeline, there is every possibility that a no-deal Brexit could take place if the opposition fails to muster an effective legal challenge. One of the factors that are in Mr. Johnson’s favor is that he blessed with an extremely weak opponent in the form of Jeremy Corbyn who looks more hapless with each days passing and it’s precisely due to this disarray that Mr. Johnson’s gambit may succeed.
For now, the market’s remain clearly nervous but not panicky. Cable dropped through the 1.2200 level but is finding support underneath the figure. Generally, the broad market bet remains that UK and EU will come to some sort of compromise that will involve a customs union but if a no-deal Brexit becomes the likely outcome sentiment will shift rapidly and cable could quickly tumble to 1.2000 and below.