The British Pound fell yesterday afternoon, after the House of Commons Speaker John Bercow essentially banned Theresa May’s Brexit deal from getting a third vote. Although prices later recovered, this once again highlights the tremendously fluid Brexit equation that markets have to contend with.
Now, all eyes turn to the summit in Brussels on Thursday, where EU leaders will have their say on an extension to Brexit. It’s key to note that the extension has to be unanimously agreed upon by all 27 member nations before a no-deal Brexit can be safely removed from the table; should just one of the EU members reject reasons for the deadline extension, the Pound will most likely find itself exposed to significant downside risks. With the prolonged moving nature and fluidity of the Brexit situation weighing heavily on sentiment, Sterling remains at risk of unwinding its year-to-date gains.
Still, the base case that markets are pricing in is one of a delayed Brexit, which may only happen in 2020. However, as we have learned in recent weeks more time may not wholly be a good thing, as it could also bring about extended periods of uncertainty and potentially more permutations to the final Brexit outcome.
Barring any more surprises, expect the Pound to trade range-bound this week.
Commodity spotlight – WTI Oil
WTI Crude found comfort near its highest levels so far this year, after OPEC+ assured markets that its members will stick to the output cuts through the first half of 2019.
Saudi Energy Minister Khalid Al-Falih says there remains a “significant glut” in global supplies which still needs to be drawn down before considering scaling back on production cuts, a move that’s supportive of Oil prices.
OPEC+ producers need to demonstrate unified efforts in their attempts to rebalance the Oil markets and to have any chance of offsetting record US Shale production.
Between now and the OPEC meeting scheduled to take place in Vienna in June, markets will certainly be closely monitoring indicators on global supply and demand. With US shale production still robust as ever, oversupply fears are likely to linger in the background. However, sanctions on other Oil producers, namely Iran and Venezuela, may sooth such concerns. Meanwhile on the demand side, should global growth show more obvious signs of faltering, this may open up more downside for Oil.