Morning Commentary: And Then There Were Two

Foreign Exchange - Morning Commentary
And Then There Were Two
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Andrew Kositkun
Andrew Kositkun
Foreign Exchange Head Trader
After multiple rounds of voting, the UK has narrowed its list of potential Prime Minister candidates down to two people—Boris Johnson and Jeremy Hunt. 
 
With the parliamentary stage of the leadership contest over (MPs vote), the voting now turns to the greater Conservative Party which will vote at 16 formal hustings, or meetings, where candidates address voters. 
 
Currently Boris Johnson, who is seen as the more pro-Brexit of the two, would appear to be the favorite to win as the majority of the Conservative party members favor a no deal exit.  Given this, history has shown frontrunners tend to return to the pack, leaving this election to be anything but a straightforward proposition. 
 
In terms of stance, both candidates share the same main goal, which is to get the UK out of the EU.  However, Jeremy Hunt faces an uphill battle to prove his resolve on this issue as he originally campaigned for the UK to remain in the EU during the 2016 referendum.
 
On balance, Hunt appears to be the more pragmatic of the two and expressed a willingness to consider a third delay should it increase the possibility of a better deal. This where the two candidates have the biggest difference in stance. 
 
Whoever is the next PM (announcement expected the week of July 22) will be facing a truncated timetable to get Brexit squared away before the October 31st deadline.  Absent another extension, the EU Council meeting on October 17-18 will be the last chance renegotiation. 
 
Ultimately, we are three years into Brexit and still at square one.  The new PM will likely attempt to renegotiate PM May’s deal but the reality remains that all options—including a second referendum or an election—remain on the table.  To this end, the implied probability of an election in 2019 has risen to 38%, the highest level since early April.
HERE ARE THE KEY NEWS STORIES FROM OVERNIGHT:
  • Markets continue to focus on the G20 meeting this week with particular focus on the “extended” meeting expected between Presidents Trump and Xi at the end of the week.  Last Friday, Vice President Pence called off his speech on China with an anonymous White House official stating there was “room for progress” and concerns over stepping on “that potential.”
  • Fed Chair Powell is expected to speak tomorrow and markets will be watching for further guidance on the Fed’s rate path. 
  • The AUD has risen for the 5th consecutive session as RBA Governor Lowe flagged the limits of monetary policy.   
  • Oil is higher on the session as the US is expected to announce new sanctions on Iran as soon as today.   
  • The Turkish lira jumped as high as 1.8% against the USD as the candidate supported by President Erdogan’s party for mayor of Istanbul was resoundingly defeated. 
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