Login Open account
Australia
Macro Digest: UK government suffers historic loss Macro Digest: UK government suffers historic loss Macro Digest: UK government suffers historic loss

Macro Digest: UK government suffers historic loss

Macro 6 minutes to read
Steen Jakobsen

Chief Economist & CIO

Summary:  Saxo Bank Chief Economist Steen Jakobsen analyses the state of play in Brexit following PM May's historic Parliamentary loss.

UK Prime Minister Theresa May saw her already controversial Brexit bill roundly and conclusively defeated in Parliament Tuesday evening with uncertainty on the future of both her government and Brexit itself dominating sentiment into today's vote of no confidence.

Here is how we see the state of play from here.

Market reaction

• GBPUSD almost unchanged with a small overnight rise leaving it at 1.2861 in the wake of today's opening bell.

• We look to tactically sell GBPUSD towards 1.2880/1.2900 as the market is over-interpreting the likelihood of no Brexit (stop loss 100 pips).

• We estimate the most likely event to be a general election called before the end of next week. The Tories will be judged “guilty” in failing to deliver the British public vote and will be seen as destructive for the UK economy; we still see the UK, together with Germany, as having the biggest risk of recession in 2019.

Analysis

PM May’s final attempt to get her deal through failed – she lost a massive 230 votes. May accepted defeat and also accepted the tabled debate of a “vote of confidence” set to happen today.

She also offered the following guarantees:

She will honour the votes of June 2016.

• The government will openly listen to solutions to solve the impasse.

•  The UK will stand by Northern Ireland and the Good Friday agreement.

The Financial Times' Henry Mance says that 196 Tory MPs voted with May, but 118 voted against. Only three Labour MPs voted for the deal and 248 voted against.

As expected, the Scottish National party (35 MPs), the Democratic Unionist party (10) and the Liberal Democrats (11) all voted against. The decision was overwhelming.

In terms of the “no-confidence debate”, it will most likely fail, but May is now more likely than not to call a general election as her “exit routes” are now fully blocked. She suffers from a lack of political capital in both Parliament and Europe.

Several European Union leaders are already out escalating the preparations for hard exit. Mind you, there is still less than a 10% probability of this happening.

The most likely path from here is:

•  A vote of confidence debate tomorrow, where PM May and her government will prevail.

•  A failed “spring” to secure extension/improvement of the deal, which will fail.

•  By the end of next week we will be in "full general election" mode and the EU will meet in late January to extend the Brexit deadline, most likely from March to the end of 2019.

Conclusion

• The market is too optimistic on a second referendum, naively thinking the chance of a no-Brexit outcome is now more likely, but listening to and analysing today’s comments I feel less certain that a second referendum will happen. The British publish doesn’t want it, according to a YouGOV poll conducted Tuesday morning (just 8% say Yes) and Parliament is “eager not to betray the June 2016 vote".

• A general election called after a short week of exploratory talks with a full Parliament.

• An extension of the March deadline by the EU Council of Ministers... despite all their harsh talk.

• No hard Brexit – which would hurt both UK and the EU.

• GBP targeting 1.2000 in its run into the UK election.

Quarterly Outlook 2024 Q2

2024: The wasted year

01 / 05

Macro: It’s all about elections and keeping status quo

Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.

Read article

FX: The rate cut race shifts into high gear

As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.

Read article

Equities: The AI and obesity rally is defying gravity

Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.

Read article

Fixed income: Keep calm, seize the moment

With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.

Read article

Commodities: Is the correction over?

Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.

Read article

  • Macro: It’s all about elections and keeping status quo

    Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.

    Read article

  • FX: The rate cut race shifts into high gear

    As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.

    Read article

  • Equities: The AI and obesity rally is defying gravity

    Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.

    Read article

  • Fixed income: Keep calm, seize the moment

    With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.

    Read article

  • Commodities: Is the correction over?

    Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.

    Read article
Disclaimer

Saxo Capital Markets (Australia) Limited prepares and distributes information/research produced within the Saxo Bank Group for informational purposes only. In addition to the disclaimer below, if any general advice is provided, such advice does not take into account your individual objectives, financial situation or needs. You should consider the appropriateness of trading any financial instrument as trading can result in losses that exceed your initial investment. Please refer to our Analysis Disclaimer, and our Financial Services Guide and Product Disclosure Statement. All legal documentation and disclaimers can be found at https://www.home.saxo/en-au/legal/.

The Saxo Bank Group entities each provide execution-only service. Access and use of Saxo News & Research and any Saxo Bank Group website are subject to (i) the Terms of Use; (ii) the full Disclaimer; and (iii) the Risk Warning in addition (where relevant) to the terms governing the use of the website of a member of the Saxo Bank Group.

Saxo News & Research is provided for informational purposes, does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. No Saxo Bank Group entity shall be liable for any losses that you may sustain as a result of any investment decision made in reliance on information on Saxo News & Research.

To the extent that any content is construed as investment research, such content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication.

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments.Saxo Capital Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Capital Markets or its affiliates.

Please read our disclaimers:
- Full Disclaimer (https://www.home.saxo/en-au/legal/disclaimer/saxo-disclaimer)
- Analysis Disclaimer (https://www.home.saxo/en-au/legal/analysis-disclaimer/saxo-analysis-disclaimer)
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)

Saxo Capital Markets (Australia) Limited
Suite 1, Level 14, 9 Castlereagh St
Sydney NSW 2000
Australia

Contact Saxo

Select region

Australia
Australia
Products & pricing
Asset Management
Platforms
Accounts & service
General
Other
Legal

Trading can result in losses. Please ensure you understand the risks.

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-au/about-us/awards

Saxo Capital Markets (Australia) Limited ABN 32 110 128 286 AFSL 280372 (‘Saxo’ or ‘Saxo Capital Markets’) is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms, Financial Services Guide, Product Disclosure Statement and Target Market Determination to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Saxo Capital Markets does not provide ‘personal’ financial product advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Capital Markets does not take into account an individual’s needs, objectives or financial situation. The Target Market Determination should assist you in determining whether any of the products or services we offer are likely to be consistent with your objectives, financial situation and needs.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website is not intended for residents of the United States and Japan.

Please click here to view our full disclaimer.