Key Brexit votes today to drive sterling
Boris Johnson will seek to push through his Brexit deal with
a vote on the withdrawal bill, 2nd reading, today. The numbers are tight, but
No10 thinks it has just enough support to get it through. It would be a huge
breakthrough as it would mark the first time MPs approving any Brexit
- Can the government
secure the 320 votes it needs? The hardcore of the ERG is on side this
time but it’s still too close to call.
- Will the government also
secure MPs backing for the program motion required to get the bill through
in record time? Opposition parties are angry about the lack of scrutiny.
For me this is key risk as it would derail the Johnson juggernaut and
require at least a ‘flextension’ – one that BJ has said he categorically
will not seek.
- Will MPs back a customs
union and/or confirmatory referendum amendment? A confirmatory referendum
is unlikely to win enough support, but would force the govt to pull the
bill. The big doubt is whether the SNP might back an amendment to remain
in the EU customs union, an idea they’ve previously backed. For the SNP
though a no-deal Brexit they can blame on the Tories might be manna from
heaven as they pursue their narrow separatist agenda.
- If MPs do back either
such amendment would the govt see this as a wrecking amendment(s) and pull
the bill, likely calling also for an election? A customs union amendment
would not affect the withdrawal itself and could be overturned at a later
All the while sterling is teetering at multi-month highs
close to $1.30. GBPUSD was last trading down a touch around 1.29650.
If the PM fails the key vote on the Withdrawal Agreement
Bill, sterling could get spun back to $1.25 in short order. If it passes, a
breach of $1.32 and thence a push to $1.34 seem likely.
But there are yet -as detailed above – plenty of hurdles for
the government to clear after winning the vote that will keep traders mindful
of downside risks. The deal premium which has already added c7% to sterling
would collapse quickly if the deal gets scuppered. That said, the market is
right now quite confident that no-deal is not such a risk now as it was – this
appears to be overconfident until the necessary votes are passed.
Meanwhile…US equities rose firmly yesterday amid a broad
risk-on rally that saw the S&P 500 close at the highs of the day at
3,006.72. The Dow has a tougher time as Boeing shares fell again, but still
managed to rally 0.2%. There seems to be some better vibes around US-China –
not that I’d say there’s been meaningful progress, but comments from Trump and
Kudlow were upbeat. In particular Kudlow’s suggestion that the Dec tariffs
could be scrapped if talks in Nov go well is a clear positive. Meanwhile
China’s vice foreign minister said today that progress was made in trade talks.
SPX is now just another day like Monday away from
breaking it’s almost-time highs around 3028. With a slew of earnings this week
we could see the bulls drive this one to a new top. We don’t have much in the
way of macro eco data to get in the way. But this a key phase now as earnings
multiples are by some measures very stretched. Eg 2020 forward Ev/Ebitda is the
highest since Dec 2007. So I think we can weather the c-4% decline – what’s
important is the guidance and I feel from today we will start to build up a
fuller picture of Q4 and beyond. Chipotle, Kimberly-Clark, Hasbro, United
Technologies, Harley Davidson, McDonald’s are among the big hitters reporting
That’s got, if we do get the ATH, the potential to knock
haven assets like gold, bonds, the yen and even start to unwind haven dollar
bids. US 10s are printing 1.8% once more.
Yesterday the FTSE struggled for momentum and clung
to the 7160 area. Different story in Frankfurt where the DAX has cleared the
YTD highs and can now look to take on the May 2018 swing high at 13,200.
European equities are starting modestly lower despite the solid handover from
the US and Asia.
Bunzl says trading remains consistently sluggish, but
in line with forecasts. Guidance for full-year 2019 is unchanged after
reporting a decline in underlying revenues for Q3. Revenues grew 4% but only by
0.5% on a constant currency basis. Acquisitions remain the only growth lever,
contributing 1.5% to this figure, while underlying revenues slipped 1%. Bit of
a slowdown is to be expected at this point in the cycle for this kind of
business. Acquisitions remain the important area – £100m so far committed this
year but investors, unusually, may want more. Shares slipped over 1.5% in early
says it’s making strong progress in challenging markets. The company is
struggling to make headway after selling Costa as it focuses squarely on an
increasingly tough hotels market. London remains strong but it’s been harder
going in the regional UK market. Total UK accommodation sales fell 0.6% and
were -3.6% like-for-like due to the hit taken in the regions outside of London.
Whitbread is one of those firms that for sure is hopeful that Brexit
uncertainty lifts sooner rather than later.
is where the growth is though and on that front things are more optimistic with
the German pipeline increasing 25% to 7,280 rooms. In fact management are
accelerating the German programme of growth and scaling back the UK. Adjusted
profits were down 4% to £236m. Adjusted earnings
before interest, tax, depreciation, amortisation and rent fell 4.8%. So lots
of short term uncertainty but longer term looking more solid – all eyes on
whether it can drive growth in the key German market. Shares
opened a shade lower.