May set to release the Brexit plan details today after suffering from a humiliating defeat in parliament while investors believe in trade truce because of President Xi.
Market participants were nervous yesterday over on Wall Street and this resulted in a major sell-off. The Dow Jones dropped by over 3.10% and the S&P500 also lost nearly over 3.24%. Investors simply didn’t believe that the trade truce has any legs. However, this was only until China officially called the trade talks between Washington and Beijing very successful. Trump can say whatever he likes, markets have started to doubt his statements because of all the back paddling and the White House covering his tracks, the affirmation of 90 days truce is more meaningful coming out of Xi Ping, the Chinese President than President Trump.
In other words, markets wanted to hear the confirmation of Trump’s statement from China. Now, Beijing has confirmed that it is optimistic that both countries should be able to iron out all the pending issues in a more progressive manner. This has restored the confidence and risk on assets are back in demand. The dollar index rose yesterday but now some steam has come out of it. Similarly, the Treasuries would also get a chance to catch up their breath as the yields are likely to slide.
Talking about not trusting the leader's word, no one has suffered the most humiliating defeat in British history as Theresa May. The prime minister suffered a triple defeat yesterday and this opened the door for the parliament to prepare for plan B when her Brexit deal gets voted down in the parliament in the coming days. The prime minister has already started to defend her deal, the details of which will be published today. May said that it is the best “compromise” that Britain can get but the Parliament believes otherwise. We are looking at the possibilities of No Brexit or pursue a softer withdrawal which could include staying in the bloc's single market. So, do not be surprised if the argument of another referendum starts to pick up more momentum.
In the midst of this, the British Pound is in death spiral mode, thanks to Brexit chaos. The force of gravity is pulling it down and the price has broken a critical level of 1.27 against the dollar, currently trading at 1.269 and the doors are wide open for the price to touch the level of 1.25 again. The higher odds of no Brexit deal are creating more uncertainty among traders. If the UK comes out of the EU with no deal, it would be no short of a catastrophe, the Bank of England and the Treasury has already raised several warnings about this. Just to put things in perspective, the housing sector could see the prices fall as much as 30 percent and the pound could fall to 1.22 against the dollar.