Equities are rebounding on Tuesday after recovering from Monday’s China inspired sell off. Soft data from China sent stocks reeling in the previous session, as traders were unable to shake off slowing growth fears. Today’s bounce comes following a pledge of more supportive measures from Beijing to stabilise the slowing Chinese economy. The move has boosted sentiment, sending Asian markets higher and European and US futures northwards. With risk back on the table, equities are back in favour, whilst the yen is moving lower.
The gains in Asia and the move higher in European & US futures come despite declines on Wall Street overnight as US earning season kicked off. Whilst tech stocks led the S&P lower, financials outperformed thanks to Citigroup. Citigroup reporting EPS above expectations and saying the trading environment was starting to improve was enough to impress the bulls.
Pound Higher Ahead of Brexit Vote
The pound is moving higher in early trade ahead of the Brexit vote in Parliament. It will take a small miracle for Theresa May to get this deal over the line. Brussels have stood firm, refusing to offer anything other than warm words to Theresa May as she heads to the Parliamentary show down. With no further reassurances over the Irish backstop there has not been the change in tide that Theresa May needed.
The broad expectation is that Theresa May will lose the vote and by a significant majority. With this, we could expect a knee jerk sell off in the pound until the next steps or Plan B are given.
Plan B is unlikely to mean a no deal Brexit. Renegotiation and an extension of Article 50 is looking much more likely. The extension is significantly more pound friendly than a no deal Brexit. An extension boosts hope of further negotiations with Brussels, a different agreement such as the Norway style, or it could result in eventually no Brexit. All of these of possibilities beat crashing out of the EU with no deal, which explains why the pound has perked up over the past few sessions.
Whether the pound can perk up after a large defeat for Theresa May depends on how quickly Plan B is put forward and also how the opposition party acts. An aggressive push from Labour towards a general election or second referendum would also impact on the pound.