With volatility at elevated levels, December is turning out to be another choppy month for markets. Brexit is reaching a critical stage, whilst fears are growing for the US economic prospects as the bond markets seem to be pricing in for a potential recession further down the line. We look at the impact on forex, equities and commodities markets and what to watch for this week.
Was Brexit ever going to go smoothly? Parliament has become a source of enormous uncertainty for the future of politics and economics of the UK. Theresa May’s deal she struck with the EU a few weeks ago does not have Parliamentary support. As a result of Mrs May’s Government having managed expectations so spectacularly badly, she now has seemingly lost any prospect of getting her deal past what is a massively divided Parliament. The question is, what will happen next? If defeated, officially, Mrs May would have 21 days to update the House on her next move, however, could events takeover? Mrs May could quite possibly face a vote of confidence from her own party (maybe), or a more likely scenario would be the opposition Labour Party table a motion of no confidence in the Government (which needs a simple majority and support of the DUP, so is possible). If she survives, renegotiation with the EU seems to be massively unlikely. Somehow removing the Northern Ireland backstop could persuade Parliament but the EU would never let that fly. Back to square one? Amendments in Parliament and the likely ECJ ruling that Article 50 can unilaterally be revoked, suggest that a move towards a much softer form of Brexit (a Norway style EEA agreement possibly) could now play out. If Parliament becomes a stalemate, a second referendum is gaining traction as an idea, but surely Article 50 needs to be dealt with. The UK would feel like purgatory. Expect volatility on sterling and FTSE 100 to be the real winners.