Brexmas election vote, equities tentative start, HSBC down on miss

Morning Note

There an awful lot of questions for traders that should be answered in the coming days. First and foremost: is Britain leaving the EU on Thursday? A vote on the government’s call to hold an election on Dec 12th takes place today. Requiring a two-thirds majority under the Fixed Term Parliament Act, it’s unlikely to succeed. The SNP-Lib Dem vote on Tuesday, calling an election for Dec 9th, has much greater chance of success as it only requires a simple majority. Amid all this we need to know if the EU will offer an extension, and for how long. The timing of the election is important as it has a material impact on whether the government can get its Brexit withdrawal agreement bill through Parliament before MPs break up for the election. The length of the delay will affect whether there can be an election or not. If there is no appetite for delay Brexit for long enough to allow an election, and/or MPs don’t back an election at some point, we could be heading for no deal by accident.

It feels as though we will see no deal risks elevated again – it’s still the default position – which would weigh on sterling. Short bets on sterling are being dumped with the latest speculative positioning data showing net shorts declined to 52.4k from 73.0k in the preceding week. The market seems to have discounted no deal now, so any threat to that consensus could quickly open up a lot of downside.

GBPUSD was firmer in early trading in London, pushing up to a whisker away from 1.2860 before paring gains back to the 1.2850 area. EURUSD was also a tad firmer, pushing up back to the 1.110 level lost last week.

Equities got off to a tentative start in Europe. The FTSE, CAC and Euro Stoxx 50 all slipped, while the DAX got a boost from better trade vibes to rally through 12,900. The FTSE 100 was weighed down by heavyweight HSBC, which slipped 3.5%. Asia was firmer as investors digested more positive sound bites on trade. It seems the US and China are close to finalising parts of interim trade deal. The mood music is sounding better on trade for sure, but disappointment is only ever a presidential tweet away. US stocks are close to record highs once more but the bulls failed to push the S&P 500 over the line on Friday. 

This is going to be a massive week for equity markets, with and slew of important macro data, earnings and the Fed in focus. The key question that we think will need to be answered is whether the Fed believes there may be another hike in December. Given the uncertainties over trade it seems likely the Fed and Jay Powell will leave the door open for another cut this year after this week’s expected cut.  

Since the last meeting the near-term risks of a blow out from the trade war have subsided with the ‘phase one’ deal, whilst no-deal Brexit risks are also greatly reduced. This offers the Fed time to pause its cutting cycle at 3 should it choose to – therefore it’s possible it will just drop a few hints that there will no Dec cut. The yield curve is also looking a lot healthier. Broadly, the economy appears still in decent shape, albeit there are heightened fears that manufacturing is slumping. Inflation is not running too hot by any means. 

Gold has eased off its highs hit last week as it continues to prefer to stick to the ranges. Bitcoin has gone on a rollercoaster that’s brought back memories of the worst of the hype phase. After last week’s plunge futures based on the 7350 support zone and flew higher on Friday before gapping up again on the Sunday open to touch $10k again. At last look prices were around $9500, a full $2k up from Friday morning.

Equities

HSBC profits fell by a quarter because of weakness in Britain, Europe and the US. Asia held up ok. HSBC has well-documented exposure to emerging, especially Asian, economies, but it’s developed markets that are the problem. Profit before tax in Asia was up 4% with Hong Kong proving remarkably resilient.

Profits overall slipped 24% to a shade off £3bn, well below expectations. Return on tangible equity was down to 6.4% vs 9.5% expected. That’s left management having to abandon its goal of achieving 11% next year.

All this leads to interim boss Noel Quinn to speed up plans to ‘remodel’ the business, for which read major cost-cutting and retrenchments. Remember Mr Quinn wants the job full time – he’s going to be aggressive with this. Shares slipped more 3% in early trade.

Sterling stabilises after steep fall, European equities open weaker

Morning Note

The pound dropped sharply after the latest Westminster drama but is firming up this morning. Against the dollar sterling was off 1% from Tuesdays highs near 1.30 at 1.2870, having tripped as low as 1.2840 overnight. It’s lost the 10-hour moving average at 1.2906 which may now form a resistance point.

The pound remains the proxy for the Brexit process and it’s displaying nervousness that Parliament still can’t get its act together and see a deal through. Uncertainty prevails for the time being, but Parliament has backed a deal and that feels like a key moment.

The government passed its Withdrawal Agreement bill comfortably but lost its way with the timetable. MPs chose to pull the handbrake on the government’s breakneck pace of legislation and blocked the program motion. Taking time out, the government chose to pause the bill – but did not abandon it altogether. Importantly, Boris Johnson said that the UK would leave the EU with this deal come what may, but did not stick to his Oct 31st do-or-die mantra.

This could be an important, indeed key, shift in the government’s position as it indicates a willingness to extend and then seek to get the bill through Parliament. The mood of the government seems to be to get the EU to approve a 3-month extension and call a General Election. Donald Tusk has called on EU leaders to back an extension. France is unhappy about any delay, Germany says they want to know why they should extend. The truth is the EU will extend, the question is the length as that depends on the purpose. As we said last night after the vote, with Parliament agreeing to the WAB in principle, the EU may only back a short delay to get the deal agreed. However the Benn Act specifies three months and therefore that would tend to be the default – individual EU countries would need to argue why it should be shorter. European leaders may be uncomfortable about what could lie ahead if they enable an election.

And the problem remains for the government that holding a General Election having failed to ‘get Brexit done’ will be oxygen for the Brexit Party and could split the pro-Brexit vote. The other risk though is that this unreliable Parliament throttle the bill with amendments and then the government is forced to pull it and seek further delay and an election. One sense Boris’s political capital would have run pretty thin by that point. Safer to use the lead in the polls and the promise of this deal to hold an election before Christmas.

And even if this deal does get through sooner or later, there is plenty of scope for ongoing volatility in the pound as we would quickly be looking ahead to the end of the transition period. Britain and the EU have until Dec 2020 to agree their new trade deal, but the UK could ask for an extension by Jul 2020 if required – i.e. if it does not look like a deal can be done in time. The mere fact though that we are talking about this now is an encouraging sign for pound bulls.

Elsewhere, European equities have softened a touch in the wake of the Brexit uncertainty and some mixed earnings. The FTSE 100 was on the flat line at 7200 with housebuilders and banks weaker. The DAX slipped beneath 12700 briefly before paring early losses.

But investors may be buoyed by signs of thawing in the rather frosty EU-US trade dispute, after US commerce secretary Wilbur Ross suggested trade talks could be an alternative to tariffs being imposed on auto imports next month. 

Wall Street finished mildly lower yesterday as US faced a Brexit drag following the government’s defeat on the timetabling. SPX closed south of 3k at 2996. Earnings are painting a decent picture of relative resilience but we’re still stuck in this range around the 3,000 level.

Earnings overnight – Texas Instruments missed on revenues and posted weak Q4 guidance. Shares fell sharply in after-hours trading and the chipmaker is a clear drag today on sentiment.  Shares in Snap also tanked about 15% at one point in after-hours trade despite reporting a solid Q3.  Snap expects to make a profit in Q4 but not as much as analysts had thought.

Asia has been pretty mixed. SoftBank shares fell as it went all in with WeWork. Hong Kong was lower amid reports of Beijing seeking to replace Carrie Lam, although the legislature has now officially dropped the controversial extradition bill. China says the reports on Lam being replaced are a rumour with ‘ulterior motives’.

Key Brexit votes today to drive sterling

Morning Note

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 deal. 

Risks/questions?

  • 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 date.

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 today.

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.

Equities 

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 trade.

Whitbread 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.  

Germany 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.

Week Ahead: Brexit courtroom drama, US inflation and euro area PMIs

Forex
Week Ahead

Welcome to your guide to the week ahead in the markets. This week, Brexit is inescapable and Euro data comes in.

UK Supreme Court ruling 

One thing is certain – the Brexit comedy/tragedy will continue this week following the drama of the Supreme Court. Boris Johnson will find out this week whether his decision to suspend Parliament was legal. Meanwhile rumours of the chances of a ‘deal’ between the UK and EU will no doubt do the rounds. 

Sterling will remain exposed to headline risk and be more volatile than peers, although until there is real clarity, GBP pairs may lack direction over the coming days. 

US PCE inflation 

The Fed is relaxed about the uplift in the core CPI readings, which jumped to 2.4% last time out. On Friday markets will be focused on the Fed’s preferred inflation gauge – core PCE. 

While announcing a quarter point cut to rates last week, FOMC members left their inflation expectations for this year and next unchanged. If the PCE gauge follows the CPI indicator, there may be some concern that inflation is rising faster than policymakers are forecasting. 

Eurozone data 

Following the ECB interest rate cut, markets are shifting to eco data to show whether there’s any sign of uplift in the Eurozone economy. Flash manufacturing and services PMIs are due Monday, while the German Ifo business climate report is released on Tuesday. 

RBNZ decision 

Reserve Bank of New Zealand governor Orr has said the central bank is in wait and see mode as it assesses the impact of cuts this year. Markets don’t expect any change to the main cash rate on Wednesday, but recent GDP slowing does suggest the RBNZ will maintain its easing bias and accommodative stance. 

Corporate Diary

Keep these dates in your diary, as results come out for Manchester United, Nike and more.

Sept 23rdCintasQ1 2020
Sept 23rd Manchester UnitedQ4
Sept 24thNikeQ1 2020
Sept 26thAccentureQ4

Coming Up on XRay

It’s a busy week on XRay, make sure you don’t miss out on these live video sessions. Tune in live, or watch on catch-up when it suits you.

07.15 GMTSept 23rdEuropean Morning Call
17.00 GMTSept 23rd Blonde Markets
15.45 GMTSept 24thAsset of the Day: Oil Outlook
19.00 GMTSept 25th Asset of the Day: Indices Insights
18.00 GMT Sept 26thThe Stop Hunter’s Guide to Technical Analyis (Part 4)

Key Economic Events

Lots of US and Euro data out this week, so expect to see some reaction in the currency markets.

07.15-08.00 GMTSept 23rdEurozone Flash PMIs
13.45 GMTSept 23rdUS Flash Manufacturing PMI
08.00 GMTSept 24thGerman IFO Business Climate
14.00 GMTSept 24thUS CB Consumer Confidence
02.00 GMTSept 25thRBNZ Official Cash Rate and Statement
14.30 GMTSept 25thUS Crude Oil Inventories
12.30 GMTSept 26th US Final GDP
12.30 GMTSept 27thUS PCE Inflation, Core Durable Goods

Cable softens as UK nears general election – and that’s when the real pain begins

Forex

Markets usually know what to do in a general election – hope a right-leaning party takes the day. But what happens when the socialists are the ones who could have the best approach to the economy?

In other circumstances, Boris Johnson would be the perfect election candidate. Sterling would surge on expectations that he would stroll comfortably to a majority. He’s charismatic, respected by many, and is facing up against Jeremy Corbyn – the perennial fence-sitter who struggles to keep his own party united.

But, as far as the markets are concerned, the current Prime Minister has a major flaw. He seems determined to take the UK out of the European Union without a deal on October 31st. He may make claims to the contrary, but his extended proroguing of Parliament and his refusal to budge on the Irish border backstop make negotiating and ratifying a new deal virtually impossible.

GBP/USD rallies hard after Boris Johnson Parliamentary defeat

It was for this reason that Sterling rallied hard this week as the opposition, with the support of 21 Conservative rebels, forced through a bill that would allow them to take control of the Parliamentary agenda and table new legislation obligating Johnson to get an extension.

Cable shot up 1.3% in overnight trading, and pushed 0.6% higher the following session to rebound from “flash crash” lows to its highest levels ($1.2350) in nearly six weeks. EUR/GBP was forced lower, falling from €0.9080 to €0.8940.

Johnson responded by calling for a snap general election, but his efforts were thwarted. Labour abstained from the vote, meaning the motion failed to receive the two-thirds majority required.

Parties fight over election date, but a vote is coming

So, we currently have Boris Johnson, who has repeatedly stated he doesn’t want a general election, desperately pushing to dissolve Parliament. He’ll try again on Monday with another vote. Meanwhile, Jeremy Corbyn, who has been calling for an election for months now, has refused the offer.

Welcome to Brexit politics.

There will be a vote though, the question remains when. Labour and the Liberal Democrats want to ensure the new legislation that prevents a no deal exit has been passed before they agree to a vote. Otherwise Johnson, who would have the power to set the actual date of the election, could simply opt for November 1st – after the UK has left the EU. It’s for the same reason that Johnson is so keen to get the opposition to agree to it now.

Even that isn’t the end of it. There’s a risk for the opposition in waiting for an election. If Boris Johnson does set the voting date after the UK’s departure, he will have been the Prime Minister who successfully delivered ‘the will of the people’. Boris couldn’t ask for a better string to his electoral bow.

Markets forced to choose between anti-economy and anti-business

But those are problems for the parties to concern themselves with. The issue for markets is do they back anti-EU Johnson, or anti-business Corbyn? In this poll, both candidates threaten the UK economy.

The business world has been largely outspoken against a no deal exit – if it does deal huge economic damage, a pro-business Conservative might not be enough to repair the damage.

But is it better to soften Brexit and then leave the nation in the hands of Jeremy Corbyn, a man who intends to completely transform the economy anyway? His plans include nationalising rail, water, electricity and mail companies. He wants to increase taxes for the rich, vastly increase public spending, and redistribute powers from corporations to workers.

Again, in a straightforward election, this would be a simple call for the markets: go for the man who doesn’t want to come after their investments. But, although Corbyn has them firmly in his crosshairs, he is at least committed to keeping as much of the status quo in terms of trade intact for business as possible.

Are markets comfortable to have the same percentage of a smaller pie, or a smaller percentage of the same pie?

Boris Johnson will suspend Parliament ahead of Brexit deadline

Forex

Opponents of Brexit are furious after Prime Minister Boris Johnson secured the Queen’s permission to suspend Parliament for over four weeks in the run-up to the October 31st Brexit deadline.

Those fearing a hard Brexit have been dealt another blow this week. The Prime Minister will suspend Parliament between mid-September and October, drastically limiting the amount of time opposition MPs have to block his attempts to walk away from the EU with no deal in place.

Although Parliament does traditionally close before the annual Queen’s Speech, this year scheduled for October 14th, the proximity to the Brexit deadline has caused outrage amongst the opposition.

Sterling plunged yesterday on the news, dropping as low as 1.2155 before paring losses, although not enough to prevent it from wiping out all of Tuesday gains by the close of trading. The weakness in the pound has been a small factor today in pushing the FTSE 100 up 1.1% to a five-day high just under resistance at 7,200.

Is this the final nail in the coffin for softer Brexit hopes?

The gloves are really coming off now. Such was the outrage caused by Johnson’s move to suspend Parliament that rebel MPs from his own party joined forces with the opposition to call for a legal injunction to stop it from happening.

With just a couple of weeks to make a move, opponents of a no deal Brexit may have to strike hard and fast. Markets may bet that the opposition will finally be compelled to act decisively – Labour leader Jeremy Corbyn has suggested he will call a vote of no confidence in the government when the time is right. He may not have much time left to choose from.

Even if a vote is called though, Johnson could refuse to hold an election until after Brexit has taken place. Remain-supporting MPs are running out of time and options. The markets are firmly pricing in a no deal Brexit, and this seems to be an almost-certainty unless the EU caves at the last second.

However, the latest developments suggest that tensions could continue after the UK has officially departed. A general election could be on the way. The battle for Brexit looks almost won, but the battle for No. 10 may be just about to start.

Cable drops as UK economy contracts

Forex

The UK economy contracted by 0.2% in the second quarter of the year, its worst performance since 2012.

Figures from the Office for National Statistics showed the surprise contraction, which was significantly lower than the flatline economists expected. It also follows strong growth of 1.8% seen in Q1.

“PMI data had indicated we were set for a contraction, albeit not so severe,” explained Neil Wilson, Chief Markets Analyst at MARKETS.COM.

Much of the growth in the first quarter was attributed to panic buying and stockpiling before the original March Brexit deadline. Indeed, Head of GDP Rob Kent-Smith, also blamed the 2.3% drop in Manufacturing output in the Brexit delay. The initial strong start to the year included production brought forward ahead of the UK’s departure from the EU.

The services sector was the only positive contributor to GDP growth in the quarter to June 2019 – but only just at 0.1%. This marks the weakest quarterly growth in this sector since Q2 2016.

Output from the production and construction sectors also contracted at -1.4% and -1.3% respectively.

Cable dropped sharply on the news, before recovering slightly. Having fallen below 1.2090, GBPUSD was last recovering above 1.21 but remains under pressure and a good 30 pips away from its highs of the day. Having breached yesterday’s lows we may see further testing of the downside.

“Clearly the unwind of stockpiling carried out in Q1 ahead of the aborted March 31st Brexit deadline has had an impact. Also, we can point to plenty of data around the world that shows we are in the middle of a broad global slowdown,” Wilson said.

“But you do have to admit that the pervasive uncertainty around Brexit is acting as a brake on the economy.”

Rolling three-month growth was negative 0.2% in the three months to June 2019, the first time since Q4 2012. This continued a steady decline in three-month growth since the start of the year.

So, was there anything positive in the latest GDP figures?

“Well, a lot of the decline seems to be down to the fall in car making as companies brought forward usual summer shutdowns of factories. The sharp fall in manufacturing output was led by a 5.2% decline transport equipment, which the ONS says largely reflected the partial closures of various car manufacturing plants. This may be partially recovered in the second half, while we may see further stockpiling ahead of the October 31st deadline that leads to a boost to Q3 numbers,” said Wilson.

However, he added, “but on the whole the figures make for worrying reading”.

Does Boris mean bad news for cable?

Forex

The UK is less than a day away from finding out who the next Prime Minister will be. The winner of the Tory leadership contest will lead the UK in its exit from the EU later this year, and Boris – who has refused to rule out closing Parliament to secure a no-deal Brexit – is favourite to win.

Cable is unsurprisingly jumpy on the topic of Brexit, and it pushed higher last week when MPs made it harder for the future PM to force through a no-deal Brexit by suspending Parliament.

The new bill states that even if Parliament is suspended, it must sit for a few days in September and October to consider issues in Northern Ireland. It also requires ministers to make reports every fortnight on progress towards re-establishing Northern Ireland’s collapsed, devolved executive and to give lawmakers an opportunity to debate and approve those reports.

While the legislation would not prevent a Parliament being suspended, it would make it harder to sidestep lawmakers.

Already Decided?

A poll of Tory members suggested that Boris has two-thirds of the vote. More than half of those who voted Conservative in the last general election would vote for Boris, compared to just 27% for Hunt. Voting is currently taking place and closes at 5pm today, with the winner expected to be announced tomorrow.

However, Boris is the firm favourite to win and, barring something spectacular, will take over the reins as Prime Minister on Wednesday. So, while markets are likely to react to the news, it’s likely that much of the turbulence has already been factored in.

What to expect

The pound is already weaker, with cable losing about 50 pips today in morning trading.

Concerns about Brexit – and, therefore, the leadership contest – continue to drag the currency down. GBP/USD had started the session north of 1.25 but was last making new lows around 1.2460. It’s likely that if hard-brexiteer Boris is announced as the next PM, sterling will take a knock.

However, leading thinktank National Institute for Social and Economic Research (NIESR) has warned that the dampening impact of Brexit over the last three years could have dragged the UK into recession already.

Overall, the think tank sees a 30% chance Sterling will decline over the course of 2020, and that probability will be higher if Britain crashes out of the EU.

Even if a no-deal Brexit is avoided, NIESR predicts the economy will grow just 1.2% this year and 1.1% next year as uncertainty about Britain’s future trading relationship with the bloc will hold back investment and slow growth.

Sterling slumps as June’s budget deficit hits four-year high

Forex

Britain’s budget deficit grew in the first three months of the tax year. The figures come in the midst of the UK leadership contest, but both Boris Johnson and Jeremy Hunt have committed to tax cuts and higher spending.

The figures had an immediate impact on sterling, which dropped 0.28 per cent against the dollar to 1.251 as economists warned the slump was a challenge for the incoming Prime Minister.

The UK’s budget deficit hit a four-year high for June at £7.2bn, almost double the £3.3bn for last year, the Office for National Statistics (ONS) revealed.

In the three months to June, borrowing was a third higher than the same period in 2018 in 17.9 billion pounds. Public sector net debt rose to £1.81 trillion, which is the equivalent of 83.1% of gross domestic product (GDP). June’s higher borrowing was linked to increased interest costs for inflation-linked government debt and higher spending on public services.

However, there was a “notable increase” in expenditure on goods and services, which reached £1.2bn.

The figures come as a blow for the leadership challenger, Johnson and Hunt, as it comes hot on the heels of economist predictions that their respective promises of tax cuts and increased spending could cost the economy tens of billions.

The pound tumbled in response to the news, in what has already been a shaky period for the currency. Sterling hit a 27-month low against the dollar earlier this month and slumped to a six-month low against the Euro. While much of its weakness is a result of the strong dollar, Brexit and economic uncertainty has plagued the pound.

Gold also pushed to a six-year high following the news, bouncing off the back of rising debt and falling interest rates. The last time gold traded this high for UK traders was summer 2011.

Cable higher on plans to thwart no deal Brexit

Forex

Members of Parliament yesterday voted in favour of legislation that will make it harder for the next prime minister to push through a no deal exit from the European Union.

The move comes as we move closer to finding out whether Boris Johnson or Jeremy Hunt has won the Tory leadership contest and will therefore replace Theresa May as Prime Minister.

MPs fear hard Brexit under Boris

As one of the key figures in the Brexit campaign, Boris Johnson has been unsurprisingly vocal on his commitment to taking the UK out of the European Union. He has said that he would prefer to leave with a deal, but is prepared to make a clean break from the EU if no new deal is forthcoming. Officials on both sides have until October 31st to negotiate new changes to Theresa May’s Withdrawal Agreement.

MPs are concerned that Boris Johnson may even attempt to suspend Parliament in order to force through a no deal Brexit in October. Lawmakers have been tenacious so far in their efforts to avoid the UK leaving the European Union without a deal, although a series of indicative votes left it clear that there is no majority in Parliament for any of the Brexit options (including a second referendum).

As the odds on a victory for Johnson have increased, cable has come under greater pressure as markets price in larger odds of a hard Brexit scenario. On Tuesday cable slipped below the levels seen during the October 2017 flash crash, although news of the victory for new legislation yesterday pushed GBP/USD up 0.5% to trend above 1.2485.

Legislation recalls Parliament, even if suspended

The bill states that even if Parliament is suspended it must sit for a few days in September and October to consider issues in Northern Ireland. On top of this, new legislation requires ministers to make reports every fortnight on the progress made towards re-establishing the collapsed executive in Northern Ireland, and states the lawmakers must have the ability to debate and approve those reports.

It effectively calls for Parliament to be present to debate unrelated issues so that MPs coincidentally happened to be sitting just as the UK is due to leave the European Union.

It does not prevent Parliament from being suspended, but it is another spanner in the works for Boris Johnson, should he become Prime Minister and attempt to force through a no deal Brexit.

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