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It’s Tough Times for Theresa May and the Pound, with More Vol to Come

Bob Mason
With the Brexit deal sunk and Theresa May needing to head back to Brussels, there’s just a vote of no confidence to survive later today…

Earlier in the Day:

Economic data released through the Asian session this morning was on the lighter side, with key stats limited to Westpac consumer sentiment numbers out of Australia and October core machinery orders out of Japan. Later in the morning Japan’s October Tertiary Industry Activity Index is due out, though we don’t anticipate any major response by the Yen.

For the Aussie Dollar, the Westpac Consumer Sentiment Index rose by just 0.1% to 104.4 in December, following a 2.8% rise in November.

  • The sub-index for finances, next 12-months fell by 0.6%, following November’s 3.2% rise, with the sub-index for family finances vs a year ago falling by 1.9%.
  • The sub-index for the economy over the next 12-months rose by 0.1%, while the sub-index for the economic outlook over the next 5-years fell by 1.5%.
  • The time to buy a major household item sub-index increased by 3.7%, while the time to buy a dwelling fell by 3.9% and up 9.7% year-on-year.
  • The Unemployment expectations index rose by 0.5%, while down 5.2% from a year ago, with the house price expectations index up 1%, whilst down 25.9% year-on-year.

The Aussie Dollar moved from $0.72108 to $0.72130 upon release of the figures, before rising to $0.7221 at the time of writing, a gain of 0.21% for the session.

For the Japanese Yen, core machinery orders rose by just 4.5% year-on-year, coming up well short of a forecasted 5.9% rise, following September’s 7% slide.

  • Month-on-month, core machinery orders rose by 7.6%, coming up well short of a forecasted 10.2% rise, the recovery failing to reverse September’s 18.3% slide.

The Japanese Yen moved from ¥113.43 to ¥113.341 against the U.S Dollar, upon release of the figures, which reflected a relatively subdued rebound following the natural disasters that had weighed on the September numbers. At the Yen stood at ¥113.45, down 0.06% for the session.

Elsewhere, the Kiwi Dollar was up 0.22% to $0.6892 at the time of writing, with the release on bail of HuaWei CFO Wanzhou providing support for risk appetite, with Trump comments on a willingness to intervene should China agree on a favourable trade agreement also there to consider.

In the equity markets, a choppy U.S session failed to deter investors who found some risk appetite through the early morning, the Nikkei leading the way with a 1.64% gain at the time of writing. The Hang Seng and CSI300 saw more modest gains of 0.07% and 0.48% respectively, while the ASX200 rose by 0.55%.

The Day Ahead:

For the EUR, economic data is limited to October industrial production numbers out of the Eurozone, which are forecasted to be EUR positive, though following an unexpected slide in production out of Germany, it could be a negative for the EUR later this morning.

Outside of the numbers, noise from Capitol Hill could deliver a boost for the EUR, with threats of a government shut down there to consider, though when considering the issues the EUR is facing at present, including the Italian coalition government, the French President’s latest fiscal move and the state of the Eurozone economy in general, not to mention the possibility of U.S tariffs on EU cars, the negative bias remains for now.

At the time of writing, the EUR was up 0.14% to $1.1333.

For the Pound, things have gone from bad to worse, with the British Prime Minister’s position at the helm under threat as the Tory Party implodes over the Brexit deal and the British PM’s decision to delay the parliamentary vote that had been scheduled for Tuesday.

From a political preservation perspective, May had little choice but to delay the vote in the knowledge of a vote of no confidence possible coming in response. Survival is in doubt with news hitting the wires that the required minimum 48 conservative MP letters of no support have already been sent.

Sir Graham Brady, chair of the backbench 1922 committee, has reportedly requested a meeting with the British PM later today, the 1922 committee chair being the addressee of letters from party members seeking a vote of no confidence.

Progress on Theresa May’s EU whirlwind tour will be key to prevent a further slide in the Pound, but it may be too late for the PM, a part vote next in the sequence should the 48 letters have already been received.

At the time of writing, the Pound was up 0.14% to $1.2505 and, with no material stats scheduled for release through the day, focus will be on Parliament and Theresa May’s Brexit talks.

Across the Pond, while economic data is on the lighter side, we can expect some impact, November inflation figures scheduled for release this afternoon. The Dollar showed some response to the better than expected core wholesale inflation figures released on Tuesday and we can expect the same if consumer prices move in the same path.

Forecasts are for an uptick in the annual rate of core inflation to 2.2% that would support the FED’s December hike and question whether the FED can take the foot off the gas through next year.

Outside of the stats, chatter from Capitol Hill will be in focus, the threat of a government shutdown and trade talks between the U.S and China to consider through the day.

At the time of writing, the Dollar Spot Index was down 0.01% to 97.379.

For the Loonie, it’s another quiet day on the economic calendar, leaving direction through the day in the hands of crude oil prices and chatter from Capitol Hill. There was some good news for the Loonie, with HuaWei CFO Wanzhou being released on bail, though how things progress from here will be key, with China ready to respond.

The Loonie was up 0.12% to C$1.3374 against the U.S Dollar at the time of writing.

This article was originally posted on FX Empire