Good morning,

GBP: Decision time

A month after it was meant to happen, MPs will finally vote on the government’s Brexit deal tomorrow evening. Conversations around the vote are not about whether the government will win or not, but simply how many votes the government will lose by.

As we have made clear for a number of weeks, there are probably six outcomes from tomorrow’s vote and the following weeks. The least likely event is that Theresa May’s deal passes parliament on the first attempt with a no-deal Brexit, followed, in my opinion, by a general election, an extension of Article 50, another referendum or an amended deal that is voted on before March 29th.

Depending on the reasons why May’s deal is voted down, we see either an extension of Article 50 and a second referendum or an amended deal being passed. The most important word once again will be ‘backstop’ as any deal that involves non-membership of a customs union or the wider single market has to have a backstop arrangement. If opposition to May’s deal is fundamentally about the backstop then a Norway style arrangement or a Canada type deal are off the table. This would leave no-deal or a second referendum as the only political outcomes.

Sterling has come higher over the weekend as news reports focus on the prospects of a second referendum or at least a delay to the Article 50 process, keeping the UK in the EU after March 29th.

CNH: Trade falls hurt risk

Chinese trade data has sent the yuan lower overnight and also damaged regional emerging market currencies. Chinese trade was knocked lower in December with both exports and imports falling. Exports from a trade-focused economy naturally have linkages with industrial production, employment, inflation and GDP and hence the concerns over the wider economic picture both in China and in wider emerging markets.

We have seen some warm words from both Chinese and US trade negotiators in the past week and investors and yuan holders will be hoping that those warm words turn into something more concrete in the coming weeks.

EUR: Greek elections are coming

Greece is back in the news which is something that absolutely nobody wanted. The governing coalition has fallen over this weekend and we will see a confidence vote on later this week. While this is not major news in the grand scheme of things, European elections are not the easiest things to predict and once again markets will focus on the progress of any extreme or fringe parties that make waves in any polling that may come.

An election in Greece was already scheduled for September and we may now see that brought forward. The single currency is back below the 1.15 level against the US dollar this morning.

Have a great day.