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UK government delays Brexit vote

By David Morrison  |  10/12/2018 15:54

Tomorrow’s key vote on the Brexit withdrawal bill has been postponed. However, the Prime Minister has promised to deliver on the result of the referendum

After days of intense debate, the UK Parliament was preparing to vote tomorrow on the withdrawal bill negotiated between the United Kingdom and the European Union. It has been apparent for a while that Prime Minister Theresa May faced the likelihood of a humiliating Commons defeat with the Opposition and many on her own side saying they would vote against her proposals. Despite this, there were numerous declarations over the weekend and going into Monday morning that the vote would go ahead. Then, suddenly, Theresa May blinked and the vote was postponed.

May promises to deliver Brexit

The Prime Minister made a formal announcement in the Commons earlier this afternoon. It was a strong statement in which she acknowledged the divisiveness of her ‘backstop’ proposal but insisted that it was temporary and now included a termination clause. Mrs May said she would be meeting members of the European Commission over the coming days although the EU has already voted to accept Theresa May’s original Brexit bill and has insisted that there can be no renegotiations. Nevertheless, the Prime Minister promised that she would deliver an exit from the European Union in accordance with the result of the referendum in 2016.

Sterling falls

Sterling fell sharply on news of the postponement. The GBPUSD traded below 1.2600, hitting its lowest level in 18 months. Meanwhile, the EURGBP flew above 0.9000 and has now gained over 4.5% in the last month with August’s high of 0.9098 now in sight.

Equity volatility picks up

Sterling aside, there’s been relatively little pick-up in FX volatility recently. This contrasts with equity markets which experienced huge intra-day swings last week. Trade tensions between US and China have escalated again after being dampened down in the immediate aftermath of G20. In addition, concerns over a slowdown in global economic activity has led US fixed income traders to price out some of the rate hikes forecast for 2019. However, the market still expects the Fed to raise rates next week by 25 basis points.

Economic events

On the economic calendar Tuesday sees the release of UK employment data and US PPI. On Wednesday we have US CPI and Crude Oil Inventories. We also have monetary policy meetings from the both the European Central Bank (ECB) and Swiss National Bank (SNB) on Thursday. Neither the ECB nor SNB is expected to move on rates, but traders expect the ECB’s Mario Draghi to announce that the Asset Purchase Programme will terminate at the end of this year. On Friday we have Chinese Industrial Production, Fixed Asset Investment, Retail Sales and the Unemployment Rate. We also have Flash Manufacturing and Services PMIs from across the Eurozone and US Retail Sales.
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