Financial market research and analysis

Theresa May survived a coup from her Eurosceptic Conservative Ministers, winning 200 votes to 117. The pound had rallied across the previous session in anticipation of her win. However, the numbers show just how divided her party is. After peaking at $1.2672 in the previous session, the pound has since edged lower overnight and in early trade this morning. After Theresa May’s win, pound traders are looking nervously ahead to the Brexit vote in January. Theresa May will need to win over 117 conservative ministers in order to have a hope of getting her Brexit deal through Parliament. This is a big ask and the currency market is fully aware of that.

Theresa May has wasted no time and is on her way back to Brussels in an attempt to secure more reassurances over the Irish backstop deal. The pound will be as sensitive as ever to Brexit headlines.

Asia rallies on thawing trade tensions & Chinese stimulus hopes

Asian markets soared across the session as investors cheered thawing trade tensions and expectations of further measures from China to support its cooling economy.

Reports that China is making good on pledges made with Trump at the G20 are helping markets become slowly less pessimistic over US-Sino relations. And that increases expectations of a trade deal being reached within the 90-day timeframe. Investors remain cautious, they have seen progress before only for relations to take a sudden turn for the worse. This caution is being reflected in a mixed start for Europe after US markets closed positive, but well off their high.

ECB to End Asset Purchases

The euro will be under the spotlight as the ECB meet to give their policy rate announcement later today. The central bank is widely expected to keep interest rates on hold and end the QE programme. Four years ago, the ECB started buying up bonds on a massive scale to overcome economic stagnation. Last year the eurozone achieved the fastest pace of economic growth since the financial crisis.

However, concerns are growing that eurozone economic growth is losing momentum. Recent data showed eurozone GDP at a disappointing 1.7% yoy whilst a German PMI reading hit the lowest level in 2 years. This means that the ECB will be tightening policy into economic weakening. That said, inflation data remains solid, making another round of asset purchasing unnecessary. The only dovish surprise from ECB President Draghi would be a commitment to leave interest rates unchanged for an extended timeframe, past the current “beyond the summer of 2019”.

The euro is trading at $1.1360. Assuming there are no surprises, the reaction to today’s meeting should be limited. A dovish surprise could see the EUR/USD move back towards its recent low of $1.1275.

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