The Day So Far
The main focus of the morning has been a further deterioration in the level of confidence in UK Prime Minister Theresa May. The renewed negativity stemmed from a report in the Sunday Times that 40 Conservative lawmakers are willing to back a challenge to her leadership which is just 8 short of pushing through a vote of no-confidence, a margin that sounds small but in reality is still some way to go. None the less, this internal disruption comes amid the looming deadline issued by the EU last week in that a revised divorce bill needs to be presented in the next 2-3 weeks in order to secure a transitional deal by the time the EU Summit begins in a months time. I see the likelihood of a deal being struck before year-end as minimal and the longer this part of the process is delayed the more impactful it will become over time. This week should be telling both politically and economically as Theresa May’s Brexit legislation will be discussed over two days of examination in the House of Commons starting tomorrow, while UK CPI, wage data and retail sales are all due for release throughout the week.
Elsewhere, although single stock news has been light the DAX remains around a precarious level to the downside having failed to bounce with any authority from the sell-off seen in the 2H of last week. The recent low in the DAX future matches up nicely with the range high that defined most of the month of October and if broken a move back down towards 13,000 can not be ruled out.
The Day Ahead
In terms of the scheduled calendar for the week, today is probably the most quiet. However, that does not mean it will be without potential opportunities. GBP will need to be monitored and whether Cable can make a concerted push through S2 will now be dependent on how the US perceive the developments that have driven the price lower this morning. One consideration here is that tomorrow sees the release of CPI data which is expected to creep higher and with the pair now down over 125 pips this morning, the latest political developments may well have been priced in for now and participants might prefer to wait for the next signal to come from the Parliament hearing kicking off tomorrow and important economic data to follow thereafter.
Elsewhere, the main driver of US sentiment still seems to be derived from the prospect of a compromise on the tax bill on Capitol hill but our base case scenario is that this will not be seen until in Q1 of next year.