The ECJ ruled earlier today that the U.K. can unilaterally reverse the Brexit process, which caused the pound to spike higher as a knee-jerk reaction.
However, bears quickly attacked and kept pushing the pound ever lower, thanks to speculation that tomorrow’s “Meaningful Vote” may be delayed.
As for other currencies of note, the Swissy is worth highlighting since it was the top-performing currency during the risk-off session.
The euro is noteworthy as well since it initially got dragged broadly lower when the pound started slumping, but managed to close out the session mixed and mostly flat, thanks to late buyers.
- German trade balance: €17.3B vs. €17.2B expected, €17.7B previous
- Italian industrial production m/m: 0.1% vs. -0.4% expected, -0.1% previous
- Euro Zone Sentix investor confidence: -0.3 vs. 8.4 expected, 8.8 previous
- U.K. GDP m/m: 0.1% as expected vs. 0.0% previous
- Construction output in the U.K. m/m: -0.2% vs. -0.4% expected, 1.7% previous
- U.K. industrial production m/m: -0.6% vs. -0.4% expected, 0.0% previous
- U.K. manufacturing production m/m: -0.9% vs. 0.0% expected, 0.2% previous
- U.K. goods trade balance: -£11.9B vs. -£10.5B expected, -£10.7B previous
U.K. can unilaterally reverse Brexit
There was already speculation last week that the ECJ may rule that the U.K. can unilaterally reverse Brexit, thanks to the advisory opinion of the ECJ’s Advocate General.
Well, the ECJ finally announced its official decision earlier today. And yes, the U.K. can indeed unilaterally reverse Brexit.
— EU Court of Justice (@EUCourtPress) December 10, 2018
— EU Court of Justice (@EUCourtPress) December 10, 2018
Here’s the ECJ’s verbatim ruling (emphasis mine):
“Article 50 TEU must be interpreted as meaning that, where a Member State has notified the European Council, in accordance with that article, of its intention to withdraw from the European Union, that article allows that Member State — for as long as a withdrawal agreement concluded between that Member State and the European Union has not entered into force or, if no such agreement has been concluded, for as long as the two-year period laid down in Article 50(3) TEU, possibly extended in accordance with that paragraph, has not expired — to revoke that notification unilaterally, in an unequivocal and unconditional manner, by a notice addressed to the European Council in writing, after the Member State concerned has taken the revocation decision in accordance with its constitutional requirements. The purpose of that revocation is to confirm the EU membership of the Member State concerned under terms that are unchanged as regards its status as a Member State, and that revocation brings the withdrawal procedure to an end.”
Meaningful vote to be delayed?
Thanks to last week’s legal advice on Brexit, which infuriated many pro-Brexit MPs, and today’s ECJ decision, a vote in favor of Theresa May’s Brexit deal now appears to be highly unlikely, which raises the odds for either a no-deal Brexit scenario or canceling Brexit altogether.
And, well, Theresa May responded to her imminent defeat by calling for an emergency meeting, which naturally fueled speculation that she will either try to buy time by delaying tomorrow’s “Meaningful Vote” or wave the white flag of defeat and resign.
The PM has called together all her senior aides for a meeting on the Meaningful Vote in No10 now. A decision on whether to pull it appears imminent.
— Tom Newton Dunn (@tnewtondunn) December 10, 2018
The Cabinet conference call is being held at 11.30.
Ministers are now assuming she will delay the meaningful vote.
One minister jokingly suggested she could be about to resign.
This was, I repeat, meant as a joke although in the current climate…
— Steven Swinford (@Steven_Swinford) December 10, 2018
Conte and Juncker meeting confirmed
There was speculation that Italian PM Giuseppe Conte will meet with European Commission President Jean-Claude Juncker this Wednesday.
Well, Juncker’s spokeswoman confirmed earlier that:
“On Wednesday (…) President Juncker will receive the Prime Minister of Italy Giuseppe Conte for a working meeting.”
U.K. data dump
The Office for National Statistics (ONS) released a bunch of economic of report for the U.K. during the session.
First up is the U.K.’s Index of Production report, which showed that total industrial production in the U.K. contracted by 0.6% month-on-month in October, more than the expected for 0.4% decline.
Anyhow, a quick look at the details revealed that the weakness was broad-based since only mining and quarrying showed growth (+1.8%).
The biggest drag to total industrial output, meanwhile, was the 0.9% slump in manufacturing production (0.0% expected).
And the main reasons for the slump in manufacturing output are the 5.0% drop in production of pharmaceutical products and the sharp 3.2% contraction in output of transport equipment.
Moving on, the next economic report is the U.K.’s October construction output report. And that revealed that construction output fell by 0.2% month-on-month, which is not too bad compared to the -0.4% consensus.
And the final economic report that was released during the session was the U.K.’s monthly GDP report.
And fortunately, that revealed that the U.K’s GDP growth grew by 0.1% as expected in October after a flat reading last month, which is a good start for Q4 GDP.
However, the three-month average comes in at 0.4%, so the other two months of Q4 need to pick up the pace in order to beat the 0.6% growth in Q3.
Risk-off start in Europe
Europe started the new trading week with a bout of risk aversion, which sent almost all of the major European equity indices lower.
And market analysts were blaming the risk-off vibes mainly on geopolitical risks, namely growing doubts that the trade war between the U.S. and China will finally end, as well as jitters ahead of tomorrow’s House of Commons vote on Theresa May’s Brexit deal, and the ongoing “yellow vest” civil unrest in France.
- The pan-European FTSEurofirst 300 was down by 0.57% to 1,354.74
- Germany’s DAX was down by 0.43% to 10,741.51
- The blue-chip Euro Stoxx 50 was down by 0.40% to 3,047.25
Major Market Mover(s):
The pound had a bullish reaction when the ECJ ruled that the U.K. can unilaterally reverse the Brexit process.
However, that decision was actually expected since the ECJ’s Advocate General already recommended that course of action last week, which fueled speculation and helped to keep the pound supported last week.
Anyhow, since the ECJ decision was widely expected, traders who opened longs last week likely decided to unwind some of their positions ahead of tomorrow’s “Meaningful Vote” on Theresa May’s Brexit deal.
However, actual sellers also likely joined the fray since rumors began to fly about that Theresa May will delay tomorrow’s vote. In fact, market analysts were blaming the pound’s slide on those rumors.
GBP/USD was down by 64 pips (-0.50%) to 1.2659, GBP/AUD was down by 90 pips (-0.51%) to 1.7537, GBP/JPY was down by 66 pips (-0.47%) to 142.64
Aside from GBP pairs, the other currency pairs were actually mostly rang-bound during the session.
CHF pairs are noteworthy, though, since they closed broadly higher during the session, likely because of the risk-off vibes in Europe.
USD/CHF was down by 3 pips (-0.03%) to 0.9884, GBP/CHF was down by 67 pips (-0.53%) to 1.2512, EUR/CHF was down by 6 pips (-0.05%) to 1.1291
The euro was mixed during the session but it’s also worth highlighting since it initially got dragged lower when the pound was slumping. However, it found late buyers and closed out the session mixed.
There was no apparent catalysts for the late buying, but hope that Italy and the E.U. can settle their differences on Italy’s budget may have helped to push the euro higher.
EUR/USD was down by 3 pips (-0.03%) to 1.1423 but reached a session low of 1.1401, EUR/CAD was up by 1 pip (+0.01%) to 1.5209 but reached a session low of 1.5182, EUR/AUD was down by 4 pips (-0.03%) to 1.5826 but reached a session low of 1.5795
Watch Out For:
- 1:15 pm GMT: Canadian housing starts (198K expected vs. 206K previous)
- 1:30 pm GMT: Canadian building permits (-0.3% expected vs. 0.4% previous)
- 3:00 pm GMT: U.S. JOLTS job openings (7.22M expected vs. 7.01M previous)
- 3:30 pm GMT: Theresa May will speak before Parliament (she’s expected to announce a delay to tomorrow’s vote)