May facing Crucial Week
Queen’s speech vote likely to be watershed.
The U.K. Prime Minister Theresa May is lacking grass roots support from her fellow Conservative MP’s but they are allowing her “enough rope to hang herself” by providing at least lukewarm support for her massively watered-down manifesto.
Any Conservative MP who campaigned on a strong pro-Brexit ticket with confidence that they would receive a healthy mandate will be looking towards his constituency with some concern.
The vote, likely on Wednesday or Thursday, could be the final act in Mrs May’s political career. The “Rockstar” Leader of the Opposition, fresh from his Glastonbury “gig”, Jeremy Corbyn will, certainly hope it is.
The longer any perceived deal to keep the conservatives in place takes to be ratified, the less likely it is to take place at all. This would leave the Government in a very precarious position but could suit them better as they will not need to concede too much to a party that would, in any event, be likely to provide support.
An Autumn election still seems the most probable outcome and if that happens Mrs May’s ultimately disastrous term as leader will already have been consigned to the history books.
Sterling calm as liquidity remains high.
Remember flash crashes? Hard to predict; impossible to survive. The ultimate white-knuckle ride. A thing of the past? Quite possible but like black swans, they are always lurking, ready to destroy the performance of even the most confident trader.
Sterling has tended to be the most frequent victim of flash crashes. However, the almost daily, improvements in technology together with a dilution of banks manual involvement in the market has led to plentiful liquidity and a narrowing, if that were possible, in spreads.
This has been a tumultuous period for the U.K. Politics and monetary policy two major drivers of currencies have been at their most unpredictable yet the currency has performed serenely.
A widening of the gulf between those wanting to hike interest rates and those favouring the status quo would normally see a fall in the currency. A political maelstrom such has engulfed the Government would have also been a major negative.
No such luck for those traders looking for a bit of volatility before their summer holidays (perhaps even to pay for said holidays in some cases).
Against the Euro there has been a little weakness but any move above 0.8800 has been met with support. It is a similar story against the dollar. Both currencies have seen activity which has the potential to provide volatility but the unwinding of the “Trump Trade” has offset the three rate hikes.
Summer of Love for the Euro.
Parity? Quite possibly. If you had asked traders if they expected to see parity this year they would have most likely have answered in the affirmative. We are of course talking about the Eur/Usd rate. It was trading at 1.0460 with two potentially extremely negative elections coming up. Mark Rutte put Geert Wilders firmly in his place and Emmanuel obliged doing the same to Marine Le Pen. This created the groundwork for the common currency to thrive.
But what’s this I hear? More calls for parity? At the same time as the single currency has become the “darling of the market”, Sterling has fallen spectacularly from grace.
So, parity for the pound against the Euro? Why not. If Brexit goes badly and no deal can be struck, the effect, even initially, on British firms selling to the EU could be catastrophic. A lot of bankruptcies could ensue, economic activity could crumple while inflation continues rising leaving the pound to collapse.
Donald Tusk, with stars in his eyes, says he dreams of the U.K. “returning to the fold”. Of course he does, the very minimum expectation for the U.K. withdrawing its triggering of Article 50 would be to join the Euro.