May scrambles to win over DUP ahead of Brexit vote

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9 January 2019


Sterling briefly eked out modest gains against the US Dollar this morning, buoyed by reports that Theresa May was aiming to win over her coalition ally ahead of Tuesday’s crucial parliamentary Brexit vote.

embers of the House of Commons will be voting to either accept or reject Theresa May’s 585-page Brexit withdrawal text next week, one of the most critical moments in UK politics in a number of years. The vote is almost overwhelmingly expected to be shot down, with the Tory’s coalition ally, the DUP, stating last week that there was ‘no way’ it would support the Prime Minister.

Reports from Sky news this morning did, however, briefly raise optimism that an accord could be reached, suggesting that May is posed to publish a series of commitments to the Northern Irish people post-Brexit. This still looks highly unlikely to convince the 10 members of the DUP to back the PM. It is already widely assumed that the vast majority of Labour will also oppose it.

US-China trade optimism improves risk appetite

Renewed optimism over the striking of a US-China trade deal helped improve risk appetite on Wednesday morning, allowing the Euro to rally against most of its major peers as trading opened for the day.

News out of the talks has been encouraging, with Beijing and Washington agreeing to extend trade talks for a third day. Adding to optimism was a tweet from President Trump who stated that ‘talks with China are going very well’. As we have mentioned on numerous occasions, we think that fears over a global trade war are somewhat overblown, with Trump’s outbursts and protectionist rhetoric more of a negotiating tactic than anything else. This improvement in risk appetite largely glossed over yesterday’s dire German industrial production numbers, which suggested Europe’s largest economy may have entered into a technical recession in the second half of 2018.

Next up for the Euro will be tomorrow’s ECB meeting accounts. We think the accounts will continue to emphasise the need for an accommodative policy in the Euro-area that all but ensures we won’t see higher rates in the bloc until Q4 2019 at the very earliest.

In the meantime, tonight will see the release of the FOMC minutes from its December meeting. We will be paying close attention to the Fed’s comments on inflation and critically the bank’s opinion on the neutral level of interest rates in the US. This could give a better idea as to whether the Fed will pause its hiking cycle for at least the first half of this year, as we currently expect.