Morning Commentary: Crunch Time!

Foreign Exchange - Morning Commentary

Crunch Time!

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Alan Rose
Alan Rose
Foreign Exchange Head Trader
In what seems to be a never ending series of hurdles and political drama regarding the Brexit negotiations and PM May’s standing and leadership within the Tory party, we are at a critical juncture. A vote of no confidence has been triggered by rebels within her own party (15% of the Conservative MPs) and will take place in four to five hours with the results posted at 1:00 p.m. PST.
PM May needs to gain a simple majority of the 315 Conservative Party members of Parliament. If she loses the vote, she would have to resign and step down, but if she wins the vote (where the betting odds are at), she will remain the leader and not be challenged for at least a year. Market reactions are optimistic for now that she will remain in power with U.K. interest rates higher on the session and the British pound higher by over 1%. Voting for PM May is not voting for the plan so there are still more hurdles and political drama ahead.
In other news, markets are in “risk-on” mode today with global equities powering higher, interest rates moving higher, and commodity prices rising. The reason for the optimism are comments made by President Trump on his eagerness to smooth relations with China to get a trade deal and that he could/might intervene in the criminal case regarding the CFO of Huawei. The U.S. dollar is mixed to lower overall.
  • U.S. CPI for November came in at 0.0% which was at expectations. Ex-food and energy, prices rose by 0.2%. Headline CPI YoY fell from 2.5% to 2.2% and ex-food and energy YoY remained unchanged at 2.2%. Today’s report has not moved the needle regarding market expectations for the Fed next week – expectations remain at a solid 76% for the ninth Fed rate increase since December 2015.
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