Vote of no confidence changes little (Daily analysis 12.12.2018)

12.12.2018 13:41|Marcin Lipka

An internal party vote of no confidence for the Prime Minister in the UK. The zloty is slightly weaker under the influence of external factors. The EUR/PLN pair moves within the range of 4.30-4.31.

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

  • 2:30 p.m.: November CPI inflation in the USA (estimates: 0.0% m/m and 2.2% y/y; excluding fuels and food: 0.2% m/m and 2.2% y/y).

Will vote of no confidence help May?

The vote of no confidence by the Eurosceptic members of the Conservative party will take place this evening. Theoretically, it should bring us closer to some solution to Brexit chaos. In practice, however, this does not have to be the case at all.

If Prime Minister May receives support from members of her party and the support outnumbers their opponents (over 70%), she will be given a strong mandate to continue the efforts to put the negotiated Brexit into effect. In a month's time, she may even receive more votes than she would have received if there had not been a vote of no confidence, as the rebels may feel alienated. In the case of a small advantage, however, May can step down on her own, and then the Conservatives will still have to choose a new leader.

The hypothetical new leader does not have to be Eurosceptic, although this group of parliamentarians has triggered a change of leader. If the leader's views imply a mild Brexit, the plan negotiated in Brussels will continue to apply. However, this does not solve the problem of its approval by Parliament, especially given that the Tories without Northern Irish Unionists (DUPs) do not have a majority in the House of Commons. On the other hand, a change of leader to a Eurosceptic (e.g. Boris Johnson) also does not solve much, as there is no support for a hard Brexit in the House of Commons. Such a plan would be doomed to failure.

If the current impasse persists, new elections are, of course, possible. This is a risk for the pound, but it is not excluded that such a solution would allow postponing the formal date of leaving the EU from the end of March next year to another date. This would give a little more time for a possible repetition of the referendum.

Investors can rely on the fact that in each scenario a new election is planned (regardless of whether the Prime Minister's office is defended or not), and the next election is a chance for a milder Brexit, and additionally a greater probability of a new referendum than in the case of the current parliament's formation.

Of course, such optimistic thinking has its weaknesses. The outcome of the elections is uncertain and another House of Commons may face the same problem like this one and may not be willing to repeat the referendum. On the other hand, a long period of suspension may finally have a negative impact on the UK economy, especially as external conditions are less favourable than a year ago. In general, we should not focus particularly on the outcome of the referendum, as it generates a similar number of question marks in each scenario and it is difficult to say which would be more favourable to the pound. This can only be shown in the next few weeks.

Limited drops on the zloty

The external situation is not optimistic for the zloty, but it seems to have improved slightly compared to yesterday's session. The euro pared some of the losses to the franc, and the yuan was appreciating after the positive information about the US-Chinese trade relations. The EUR/PLN is quoted in the 4.30-4.31 range.

Apart from reports from Great Britain, CPI inflation data from the USA will be the event of the afternoon. If consumer prices rise above 2.2% y/y and 0.2% m/m in base terms, the dollar will strengthen. It seems, however, that a slightly stronger dollar should not significantly weaken the whole zloty basket, so around 4.30 per EUR/PLN remain the baseline scenario for the coming hours.


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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 the written permission from Cinkciarz.pl Sp. z o.o is prohibited.

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