Brexit Delay Inevitable - What Next?

Hi guys, good morning. It is Wednesday the 23rd of October, just gone 8 o'clock here in London. There's one word to describe the Brexit situation at the moment, it's pretty much going to be uncertainty. Yesterday, obviously having a couple of votes in the House of Commons, and we'll have a quick look at how that has affected markets going into today. And here is just the summary on the charts of what happens. So you can see the pound from the high that we reached yesterday up around 130.23, we're now trading down at 120— well, 129 pretty much to the dot. So over 106 lower still from that high. Uh, the, the first vote, uh, went the government's way, which is actually the first time, uh, a majority win for the House— in the House of Commons for any Brexit deal. Uh, so the Wav vote, uh, going through, first time that has been for a majority, a win there for the government at first, 329 to 299. Of course, it wasn't, uh, all that simple from from then on. As we know, the next vote, the, uh, the vote on the timetable to, to push plans through, uh, the government— well, in just 3 days, the government was therefore defeated 322 to 308. The MPs saying they need more time to scrutinize, uh, the plans. So if we have a look at the reaction in the pound, just going back to, to the chart here, you can see it's come under pressure, uh, from that I guess there's more uncertainty now. You know what, we haven't got the confirmation whether there is going to be an extension. EU's Tusk came out and tweeted pretty much straight after that, you know, he was very much in favor and he was going to recommend the EU27 to accept the UK request for an extension. For this, I will propose a written procedure. So You know, still up in the, up in the air, this uncertainty, which is probably what is still weighing on the pound. Because, you know, I'll go through my personal reasons and opinions why actually this is overall, you know, medium term anyway, a positive for, for the pound. Uh, the only reason we could continue to come lower consistently would be if no deal, uh, was looking ever more likely. And Europe have kind of shown their hand with completely not wanting that, and obviously parts of Parliament as well. So for me, I do see the pound as a buy over the coming days, if not today, given the right scenario in play. But yeah, last night, government defeated on the second vote. However, first win, majority, something Theresa May failed to do 3 times before. So overall, yesterday you could even say it was a bit of a win for Boris. He came out after and said his policy still very much remains to leave, remains to leave on October the 31st. However, the government have left a short extension on the table. A couple of comments that have come through as well following this: if Parliament's delay is agreed by Brussels, which as you saw from Donald Tusk looks likely, then the only way the country can move on is with an election. So we'll talk about the election, how that could happen if that was to be motioned this week, and then the reaction that it would perhaps have for the pound. At the moment, Conservatives look like they would be able to get more of a majority, which would of course give an increased chance of getting any deals through, something Theresa May famously tried in 2017, albeit it backfired quite dramatically on that Thursday evening. Uh, other comments, uh, Justice Secretary Robert Buckland said it was undeniably frustrating to have lost the program motion, uh, which would have given MPs 3 days to scrutinize plans. We want to crack on, and if we can't crack on, regrettably it does seem that a general election is the only way to sort this out. So yeah, I think general election is going to be the most likely. There's talks of a flex-tension, there's talks of an extension now to, to January 31st, which Boris Johnson has come out and said if that is the extension date, then he is going to push for the general election. Um, and all of these things considered, well, let's have a quick look at the, the charts at where we're currently trading on the bigger picture. Of course, from the 122 120 low, I should say. We're, we're still up quite nicely, and this is of course of an unwind of the no deal. So still 7.5%, 8% up from that low, uh, which really is just kind of the unwind of the whole move that we saw in May, which was the increased chance of no deal. Europe do not want no deal. Parliament are not going to vote through no deal October 31st, as has been pretty much the whole time been off the, the table in terms of when we're leaving. So we're kind of back to square one in terms of that. We're not looking at no deal now. A general election, it would be a tricky one. And let me know in the, in the chat, guys, and trading live, and obviously YouTube later, uh, what you think, uh, about a medium-term move on a general election, whether it be pound beneficial or not. Of course, there's still going to be some concerns about a Corbyn-led government if that was to be the case, of course. Um, but would this then increase the chance of a deal getting, uh, put through? And actually, this is then pound positive, and we're suddenly then looking towards 1.33, 1.34. It'd be interesting to see what, uh, you all think. The, the extension to January 31st, again, this is taking the, the idea of no deal off the table, giving more time to to get through a deal. And if we take ourselves back to before the summer when they granted the extension to, to Halloween, of course, you know, the comments out were there will not be another extension. We all know it's all a case of just words at the time. And even if this extension, come January 31st, do we really think there's going to be some sort of deal agreed by then? Unlikely. I think Boris realizes that, and the only way that this could develop into reaching a deal sooner rather than never would be with that general election. So there's a good article from the BBC, um, well, this is probably back in October now, uh, just about how we can go about getting the, the general election, how it could be called. And see, the, the, the first way: do at least two-thirds of MPs approve of a, of an early general election? If that's the case, then 28th of October is talked about, and of course that is the Thursday, uh, 28th of October, as law requires 25 days between an election being called in Parliament and polling day itself. So that could be one way if two-thirds of MPs approve on that as well. And obviously, just to note, of course, today and tomorrow was expected when MPs have been due to debate the bill, um, but will now return to discussing the contents of the Queen's Speech following defeat in Parliament yesterday, which will put forward the government's domestic agenda for the new session of Parliament. So another way they could, uh, to call a general election— of course, they don't get those two-thirds— it may try to get around the requirement altogether. It could do so by introducing a very short law that calls for an election and adds notwithstanding the Fixed Term Parliaments Act. So if that is passed through, the election could be the 5th or 12th of December. So the 28th of November date would be if we get the two-thirds. If they don't get the two-thirds, there is still ways— and I'll just put this into the chat room now— of how we could get that general election. Yes, you're going to have the uncertainty when it is called Um, you know, you're going to have Labour. Are they even going to allow that to happen? We've had comments that have come through this morning, um, from, uh, Richard Bergen of Labour, who confirms Labour will back a general election if EU agrees an extension beyond October 31st. However, then we've just had some comments from, uh, an ITV source saying that they— that the majority of Labour do not agree with Robert— Richard Bergen. So it's going to be comments like this, it's going to be uncertainty. Are Labour going to vote it if it comes through? What are their policy going to be? Is there going to be a second referendum on the table, the customs union? So that uncertainty, fine, will weigh in my opinion on the pound short term, but only be a better opportunity to buy, as I do feel Conservatives will have enough to get this deal or get the majority in Parliament, therefore get a deal through. And that for me then takes us in the pound at least, at least up to 134. So for me, over the course of the next month or so, I do see pound being higher than where it is now, I have to say. So back to that article. So we have the government calls election through a law to get around the two-thirds vote requirement, uh, and or Labour could call a motion of no confidence. I don't really see that happening, or the government could call a motion of no confidence in itself as well. So that will be all up for debate, and surely, uh, it could be the only way really we get anything through. An extension or a flex-tension, which has been talked about. While I do feel short-term is going to be short the pound— uh, long the pound, sorry— a good opportunity to, to get in it's just going to be more uncertainty, no deal being reached, uh, and I feel the general election is the only way forward here. But anyway, I'll be interested to see what, uh, what you guys, uh, think there, uh, as well. Mr. Buckland, who I mentioned saying that the general election was the, uh, the way to, to go through, he said no deal was still a real possibility. I have to say I disagree on that. If the EU just chose to not extend the deadline past the 31st of October. I don't think that's the case. The, the EU don't want it. I don't think Boris really wants it either. So no deal has been taken off the cards. That whole May move down to the 120 low on no deal happening or increased chance of it has been reversed unless we were to get some seriously hawkish rhetoric regarding that. For me, that's, uh, that's put to the sword, uh, for now. Katja Adler, obviously a good source to follow in regards to Brexit, along with Laura Koonsberg, has been speaking overnight and claiming that the EU circles said she had spoken to were tempted to grant the extension to 31st of January laid out in the so-called Benn Act, the law aimed at preventing no deal, of course. However, BBC Brussels reporter Adam Fleming said an EU source had indicated the bloc was also considering a flex-tension an extension with a maximum end date with the flexibility for the UK to leave early if a deal was ratified sooner. So initially off that, I'd see that as a positive, but as with the— if we were to go back to that— as with the maximum end date, we've already had a couple of those and it doesn't really work too well. So positive initially, and then as we get closer to that maximum end date, the uncertainty surrounding it, the chance of no deal perhaps coming back into, to the minds and no deal happening itself, you know, that could be then a negative down the line. But certainly short term, I see that, uh, would be as a, as a positive. Um, if an election was to be triggered this week, as mentioned, that would be 28th of November, uh, that, that would come in. If we have a look elsewhere from last night, what the reaction of the pound, uh, had on markets, um, not just the pound related, the euro on my left-hand side here you can see also came lower. Stocks overnight, uh, literally as the vote took place, drifted lower as well. So if we take ourselves back to last week, uh, where the, the talk of a deal happening— I think it would have been, uh, you know, was it Wednesday last week? Let's have a look. Tuesday last week, where the talk of a deal happening. Stocks loved it as well, not just in Europe but, uh, the US as well. So this risk at that time being taken off the table, now that uncertainty is back and stocks, uh, you can see came under pressure as well. Gold this morning has pushed higher, obviously the inverse of that risk-off in the markets, and we're now back to that $1,493.92 level. However, worth keeping an eye on gold here as we are just getting squeezed from both directions. So we're just having these, uh, marks up for a potential move to come later on, uh, and the bigger one, uh, you should expect considering the last few days where it has been squeezed, uh, in. Also yesterday, worth noting, we had some comments out of, uh, of OPEC as well. So you can see oil— I'm just going to put this into 15-minute chart— you can see where these comments came through yesterday, uh, from OPEC that there was rumors that they were going to, uh, do an extension or increase— extension cuts in December. And of course this, uh, helped, um, well, supply cuts next month. Yes, so November. Um, this helps oil push higher. However, we have just dipped perhaps a bit from those highs, uh, on a bit of risk-off in the market. The Bund pushing on late last night. T-notes as well also doing that. So really this week, or the rest of this week, which was going to be focused on— well, for the pound anyway— about the, the next sort of 2 days of debates is going to be a case of what is the, uh, the EU's ploy. Are they going to grant an extension? Is that going to be a fixed date or is it going to be, um, you you know, a case where they can leave before if they were to reach a deal? Or are the UK, upon hearing maybe a January 31st extension, are they actually going to call or try and motion a general election itself? Either way, medium term, I see it as a pound positive. The only negatives are going to be the uncertainty initially of a general election, or if the UK— if— or if you were not to grant an extension. If that was the case, if they were not to grant an extension, I honestly don't think Boris Johnson would, would leave on the 31st of October with no deal. And, you know, therefore I think if that was to happen today, we'd already be down, uh, towards 124, uh, considering we're up at 129. So big intraday move, absolutely, if that was to happen, considering there's only, uh, well, 8 days until Halloween. Also worth having a look at the, the calendar for, for today, uh, just to reiterate that it's going to be a relatively quiet one as well. Monday, Tuesday, dead days in the market, has to be said. And now on the calendar front, the same expected. We'll go through the, the API readings ahead of the DOE later on as well, but they are really the main thing here that's going to move price from a scheduled point of view, and that's at 3:30. No real speakers. Yes, we've got some earnings out as well— Boeing, Microsoft expected eBay, Caterpillar. So worth keeping an eye on those as they come out from, from markets. Also, quick look over the, the betting odds of a general election. So if we have a look at the, the British politics betting odds here, Jeremy Corbyn 9 to 4 to be the next Prime Minister. I would say that's not high enough personally. Month of next general election, so December here is, uh 5 to 6, I think, to be honest. And I'm, you know, I am a betting man. November, we talked about November the 28th would be the earliest a general election could happen. Now that would of course mean that where it would get motioned, uh, pretty much this week in the coming days. But 20 to 1 for that shows how markets, uh, betting markets aren't really expecting that to happen as of yet. However, December is odds on, so that's when we would be perhaps looking for, for that to happen as well. Back to Brexit, if we have a look here, the UK to leave the EU by the 31st of October, and of course that now would be pretty much without a deal, looking at 16 to 1. So I think that's fair odds considering that it's very unlikely to be— to happen. A second EU referendum, you're looking at about 20 to 1 before 2020, so again quite unlikely for that to, to be the case as well. So quick look over the markets technically, how we're looking ahead of the day. If we start off with the pound, so I mentioned I like the idea of there being an opportunity to, to go long. So the way I'd be looking at it is obviously you've got the, the highs of the day from yesterday evening, or I should say the yesterday evening high. Also got the lows in the mix around there, so 1.2925, just before the pivot which then of course comes up with a couple of lows as well. If we were to get a break above that, let's just bring in the text line here, something like this, to come in to get that push through. From a technical perspective, of course, the idea of when this extension is going to happen, general election chat is going to influence markets, but that could be a way that I would be looking at it. Of course, to the downside, if we were to have any further negative sentiment in, in the market, you can see we're starting to trend higher Um, so a break of that from those lows as well could be a half decent opportunity, uh, to target of course the lows from there. The low that we made this, uh, morning, pretty much bang on the low from the 18th as well. So again, an opportunity to get short should we break that low. I think very much it would be a case of just waiting and seeing what— how this market, uh, reacts. Really, yes, it is of course, a big intraday move from 1.3024 down to 1.2864. Um, but I can easily see over the coming days a full reversal of that. Yes, 1, 2, 3, 4, 5, 6 tests up at that high. So you've got to imagine as well, a break above there, uh, could see a bit of a relief rally. In, uh, with the euro, obviously worth noting tomorrow you've got the ECB meeting, last Draghi meeting. So I'm not expecting too much in the way of fireworks from this market today, uh, and really markets in general, it has to be said, other than the pound. Pivot's a pretty key area, original low from yesterday, also a closing high from last night, uh, as well, up towards the highs from last week, trending lower. Got a solid base like with the pound, that low from the 18th, so worth keeping an eye on that, how we get squeezed in, and then the possible push lower just on the Brexit uncertainty, uh, maybe the opportunity there to wait for, for that break or above the pivot to target towards that trend line. Either way, I'm expecting a relatively quiet one. Uh, S&P, you can see here the pivot, like with the euro and the pound, a pretty important level, uh, an area of support that we have broken through. So be keeping a watch on that, like with those lows as well. Probably worth waiting until the, the second part of the day with the US cash open to really come in and wait for the earnings. Obviously Caterpillar, we know, can move the, the Dow and be a good bellwether going forward. Microsoft, Boeing, uh, and eBay, PayPal, all ones that will in their own right have an influence on stock. So some interesting earnings. You've got 20%, remember, of the S&P coming out and giving earnings this week. So while actually earnings have been slightly more positive, you've also got the the troublesome geopolitical risks, the Brexit scenario, trade talks. Obviously, while we had some positive chat recently about November talks, the Brexit situation is really the main driver here going forward. Oil, we'll mention, we'll run through as we come closer to, uh, to 3:30. Obviously, that high, uh, from yesterday slightly broken the, the, the high from the 18th, but obviously a failed break of that and remains a pretty key area of interest, uh, $54.68, give or take a few ticks. Let me just bring in this rectangle to show why. You can see those break— that breakdown area from the 27th to the 1st, highs from the 15th, 16th, and then of course recently there as well. So if we can get back above there, it'll be pretty significant and be a bit of a relief for the oil market because course, with these cuts proposed, uh, for next month. You can see that happening. Alternatively, be looking to see if we can break, you know, what has been quite a choppy trend, but something like this. So for oil, like with gold, it'd be a case for me, certainly medium term anyway, for a clearer direction, to wait for confirmed break above either here or back below that trend line, uh, as well. So same as gold, as mentioned, just getting squeezed in perhaps we're waiting for, you know, the better opportunity to be above here or below there as well. Just going back to that calendar, just to wrap it up, expecting a relatively quiet session, to be honest. Just eyes out on— or ears out, should we say— on, on the Brexit situation of is there going to be the January 31st, is it going to be a flex extension, and then general election chat as well. Any questions, as usual, please do let us know. Uh, but I hope you all have a good trading day ahead.