1. Deal Or No-Deal?
Last night saw a mutiny aboard Theresa May’s H.M.S Brexit as some 20 Tory MP’s jumped ship to vote alongside the Labour party to restrict the Treasury’s freedom in the event of a no-deal Brexit. So, what does this mean?
This move was a strategic one to tie government’s hands and make the prospect of no-deal extremely unattractive. Limiting the Treasury means that the government would have limited access to funding to prevent any economic headwinds that could arise, leaving the UK’s economy extremely exposed. That’s more than unattractive, it’s downright ugly!
With the defeat coming a day before the debate was due to resume, more doubt has been cast on an extremely uneasy market. The next five days will be extremely important for MPs to negotiate possible alternatives to crashing out of the EU ahead of next Tuesday’s vote. Let’s hope they can all play nice.
The Pound weakened against the Euro last night, and analysts have forecast extensive volatility to come as the deadline looms into view. Good news throughout the week will likely filter through into a rally in the Pound.
However, in the event of a no-deal catastrophe, investors will be fleeing to safe haven assets, not just in the UK and EU, but the world-over. Have you started doomsday prepping?
2. World Bank Woes
It’s all doom and gloom coming from the World Bank after it downgraded the 2019 outlook in a grim report. The paper itself was even called “darkening skies”. Who knew the World Bank had such a flair for the dramatic?
The downgraded outlook is all thanks to the lingering effects of the trade war, weakening manufacturing activity and growing pressure on financial markets. The forecast estimates a second consecutive year of weaker growth coming in at 2.9%, down from 3% last year and 3.1% in 2017.
It’s a sea of red predicted for all major economies. The US is down to 2.5% from 2.9%, Europe is at 1.6% from 1.9% and China is at 6.2% from 6.5% as global growth splutters into 2019.
Even though positive headwinds in the trade war have boosted Asian markets from their lows, it will take some time to undo the damage done to global markets in 2018.
Tighter monetary policy, and a stronger Dollar have also pinched emerging market growth numbers, and will continue to do so as countries divert development funding into debt-servicing instead.
Overall the picture may be a bit grim, but with a possible trade deal on the horizon and a flexible approach from Powell, who knows, the skies may not be as dark as the World Bank has predicted.
Today we are watching…
1. WTI Crude Oil (#wtioil)
Oil is back with a bang this week and has broken the key $50 level. Boosted by positive signs of a US-China trade deal and moves by OPEC, Russia and other oil producers to curb supply, oil’s comeback may be here to stay in 2019. But beware of negative developments in the trade war. Markets like to take the stairs up, and the elevator down.
2. Union Pacific (#unionp)
US transport giant, Union Pacific, bounced 8% yesterday after announcing the arrival of a new Chief Operating Officer. The firm added railroad legend, Jim Vena, into the mix for his vast experience in precision railroad scheduling. Markets welcomed his addition with Credit Suisse forecasting reduced execution risk going forward. Keep an eye on this one.
