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Brexit - still no decision (Daily analysis 21.10.2019)

21 Oct 2019 13:49|Marcin Lipka

The fact that the House of Commons' agenda was disturbed on Saturday left Prime Minister Boris Johnson's Brexit agreement unvoted. Global sentiment largely depends on the pound's situation. The zloty remains stable despite weak retail sales data in September.

The most important macro data (CET - Central European Time). Surveys of macro data are based on information from Bloomberg unless noted otherwise.

  • A lack of macro data may noticeably impact the analyzed currency pairs.

Pound will set the sentiment

Once again, Members of the British Parliament have failed to decide on an exit agreement with the EU. Despite the great emotion around it (for the first time in almost 40 years a meeting of the House of Commons took place on Saturday), there was a huge demonstration in London calling for a second referendum - the key decision has been postponed once again. To when? It is difficult to say.

The amendment by former Conservative Olivier Letwin to avoid chaotic departure from the EU disrupted the agenda and postponed the vote on the Brexit plan. However, the government is not giving up and, despite the need to send a request to Brussels to extend the negotiations, it still wants to adopt the agreement negotiated by Prime Minister Johnson and leave the EU until October 31st. However, there are more and more obstacles on the horizon, which are not necessarily negative for the pound, although the adoption of the agreement itself would probably be very beneficial for the British currency.

First of all, the Speaker of the House of Commons may not agree to hold a binding vote on the same matter once again in one meeting. The government, on the other hand, does not want to hold an indicative vote. Johnson may fear that labourists will submit amendments that will start to disrupt the agreement reached by the Prime Minister, moving it towards a customs union. This, in turn, would be contrary to the intentions of the Conservatives. The opposition may also seek to another referendum, which would not be bad for the pound (a chance to completely withdraw the Brexit), but it also closes the path for conservatives to leave the EU.

Therefore, much will depend on the meeting of the House of Commons today. Johnson's success (agreeing to a binding vote and a parliamentary push for the plan) should help the pound. A suspension of the subject is not a bad thing for the pound either. It allows the opposition to impose the agenda, and most opponents of the government (except for the Brexit Party) are in favour of leaving the EU mildly or staying in the Community. This should also maintain relatively good market sentiment, which in recent days has been driven by events in the UK.

The worst solution for the sterling would be to reject the plan proposed by Johnson and put the Conservatives back on the path of confrontation with Brussels. If voters were to support such a stance (surveys), then the pound could become significantly weaker, as fears of chaotic Brexit would return (in the following weeks). For now, it seems that the positive sentiment on the pound should continue and there is a greater chance of maintaining good sentiments (which also supports the EUR/USD) than a sudden collapse.

Weak retail sales data. Zloty stable

The high pound quotations, the relatively good global sentiment and the weakness of the dollar help the zloty. This allows the EUR/PLN exchange rate to remain close to 4.28. The favourable external situation also eliminates negative signals from Poland.

According to the Polish Central Statistical Office (GUS), retail sales rose by only 4.3% year-on-year in real terms in September, with expectations at 6.2% year-on-year. This is a weak result due to the higher number of working days in September compared to last year and the first payout of 500 plus Child Benefit program for the first child. Looking at the categories, most of them recorded a decrease in the dynamics of growth, so it may not be a one-off event, or simply an effect of weaker moods, e.g. on the labour market (employment in enterprises practically ceased to grow). In general, however, these data should not have a negative impact on the zloty, especially if the global sentiment does not deteriorate dramatically. Maintaining current PLN levels in the coming hours seems to be a base scenario.

21 Oct 2019 13:49|Marcin Lipka

This commentary is not a recommendation within the meaning of Regulation of the Minister of Finance of 19 October 2005. It has been prepared for information purposes only and should not serve as a basis for making any investment decisions. Neither the author nor the publisher can be held liable for investment decisions made on the basis of information contained in this commentary. Copying or duplicating this report without acknowledgement of the source is prohibited.

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