Brexit, Brexit, Brexit

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Market Drivers March 12, 2019
Brexit vote takes center stage
US CPI on deck
Nikkei 1.79% Dax 0.49%
Oil $57/bbl
Gold $1295oz.

Europe and Asia:
GBP UK data n/s

North America:
USD CPI 8:30

All eyes on the UK today in the FX market as traders await the outcome of the Parliament vote on PM’s new Brexit deal proposal that could determine if the UK maintains its trade ties to Europe or spins out into an uncertain void.

After late last-minute negotiations in Strasbourg, Theresa May returned to Parliament claiming that she received legally binding assurances from EU that would not make the current Irish border status a permanent part of the deal. Whether she is able to convince the hard right wing of her party that these are genuinely meaningful changes or simply cosmetic add-ons that do not really change the terms of the deal remains to be seen.

A spokesman for the ERG – the most eurosceptic part of the Tory party – noted that it would be inclined to support the deal if the DUP did as well. The DUP however the most radical right part of May’s coalition and so far the spokesmen has expressed doubts about the newly negotiated language.

Cable has been volatile in London trade running up to a high of 1.3242 and then sliding back to 1.3200 as sentiment ebbed and flowed on the latest comments from DUP. There is probably a good chance that DUP given their reactionary agenda will likely vote against the deal. The more interesting question will be if ERG will follow that same path blindly, or whether cooler heads within that wing of Tories to get the deal done.

UK business organizations have warned that a no-deal Brexit would instantly result in massively delays at the border and could materially affect 60% of all UK business within just a few weeks of the split. In just one small example the UK car repair industry which employs about 30,000 workers and relies on just in time parts from the Continent could see as many as 3,000 shops go out of business within the first month of a no-deal arrangement.

With Europeans seemingly pushed to their limit on compromise and with UK populace set against any Brexit delays, the UK lawmakers may face an inordinate amount of pressure today to get a deal done. Ahead of the vote cable remained bid as traders remained optimistic that approval could happen, but if the vote fails today the downside reaction is sure to be swift and violent with the pair likely unwinding all the gains of the past two days as it falls below the 1.3000 mark.

Even if the vote fails in Parliament there will still be time to delay the Brexit, given the state of affairs as the stand now, today is the last, best opportunity to get a deal done that will avoid a hard Brexit outcome.

Boris Schlossberg
Managing Director

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