Sterling slides as parliamentary suspension fuels no-deal Brexit fears - as it happened

Graeme Wearden

from on 2019-08-28 16:04 (#4P3MF)

Rolling coverage of the latest economic and financial news, as fears of a no-deal Brexit hit the pound

5.01pm BST

Time for a recap

The pound's fallen 1% today, almost entirely on reports that Boris Johnson's govt plans to suspend Parliament to mid-October https://t.co/ONlGQHUhTp pic.twitter.com/LVjPdA0rYM

Depends, as ever, on your time horizon. Well down from $1.40 last year! And from when BoJo took over as PM pic.twitter.com/ZqxSTJBOjc

5.00pm BST

Deutsche Bank estimates that there is now a 50% chance that Britain crashes out of the European Union without a deal at the end of October.

The best way of avoiding it, they suggest, is a 'national unity' government. For that to happen, though, Johnson's opponents must agree on an alternative leader.....

Confused by Brexit? Here's Deutsche Bank's flow chart of what might (and might not) happen next. They reckon there's a 50-50 chance of a no deal... pic.twitter.com/iODxacwveC

28 Aug - 11:37:48 AM [RTRS] - DEUTSCHE BANK: MOST LIKELY WAY TO AVOID NO-DEAL BREXIT WOULD BE FORMATION OF NATIONAL UNITY GOVERNMENT IN EARLY SEPT OR LATE OCT

4.23pm BST

Derek Halpenny, head of research at financial firm MUFG, fears the pound will slide in the coming weeks - and slump to just $1.1 if a no-deal Brexit were to happen.

"Today's development brings us firmly into the realms of a 'Constitutional Crisis'. The proroguing of Parliament leaves an incredibly narrow window for Parliament to legislate the move, agree to an Article 50 extension or organise a no-confidence motion.

All of the above means no-deal Brexit is looking ever more likely. GBP downside risks will continue to plague the market. It is only a matter of time until the recent GBP/USD low of 1.2015 is brought even lower. The MUFG base case no-deal Brexit assumption and our current year-end target of 1.1000 remain intact."

4.00pm BST

Boris Johnson has asked the Queen to prorogue parliament for up to 34 days.

That's longer than any prorogation period for at least 40 years. Since 2010, the average suspension period has been 8 days. pic.twitter.com/LXUeY6UjQa

3.36pm BST

The Economist Intelligence Unit is hardly a hotbed of left-wing radicalism, but their managing director Robin Bew isn't impressed by the proroguing of parliament.

If a #UK Gov can't get a parliamentary majority for a proposed course of action, then it seems to me the right approaches are either to change course or hold an election. Shuttering parliament seems democratically wrong and also creates a risky precedent.

3.10pm BST

The Queen didn't hang about.

Following today's Privy Council meeting, an order has been issue to prorogue parliament between Monday 9th and Thursday 12th September.

It's official: pic.twitter.com/NFkWlGu40Y

2.58pm BST

Seema Shah, chief strategist at Principal Global Investors, is alarmed to see the government flirting with a possible no-deal Brexit on 31 October.

She fears it would plunge the UK into a full-blown recession, at a time when global trade wars are also hurting the economy.

"From an economic point of view, actively pursuing a no-deal Brexit through suspending parliament is tantamount to actively pursuing a recession.

The PM's move comes at a time when the FTSE 100 is on course to record its largest monthly fall in four years. The large, multinational businesses in the FTSE have, naturally, been highly sensitive to an escalating trade war between China and the US, particularly as the complex global supply chains of which they are parts face seismic disruptions. They are fighting political fires at home and abroad.

Although the pound had been mounting something of a feeble rally against the dollar in August - before The PM's bombshell - it was still at rock bottom valuations against the US and Eurozone currencies.

Company fundamentals remain broadly strong so the implication is that global investors have finally reached the "do not touch" point for UK equities

CBI response to parliament suspension plan

"No matter how much preparation the Government and businesses do for No Deal, only a good deal with the EU protects jobs, communities and the economy."

2.50pm BST

President Donald Trump has just backed Johnson.....

Would be very hard for Jeremy Corbyn, the leader of Britain's Labour Party, to seek a no-confidence vote against New Prime Minister Boris Johnson, especially in light of the fact that Boris is exactly what the U.K. has been looking for, & will prove to be "a great one!" Love U.K.

2.28pm BST

Bloomberg reports that its customers have been frantically searching for what it means to 'prorogue' parliament.

The top search on @TheTerminal this morning is for the dictionary definition of "prorogue."

prorogue: [vt., vi.] (prorogued, proroguing) to defer; delay; postpone, to discontinue or end a session of (a legislative assembly, as the British Parliament). https://t.co/DjY18XTUA8

2.13pm BST

The big picture is that the pound has shed 7.5% of its value over the last five months, as a no-deal Brexit has become more likely.

Sterling hit $1.32 back in mid-March, when it became clear that Britain wasn't leaving the EU as Theresa May had hoped. It's now 10 cents lower at around $1.22.

2.02pm BST

Here's a quick guide to prorogation:

2.00pm BST

There are 700 members of the Privy Council, which is one of the oldest parts of Britain's constitutional framework. But Queen Elizabeth won't have to drag out hundreds of cups and saucers to refresh them all.

You only need three Privy Counsellors to form a quorum (plus QEII). Two of them have already made the trip from London to Balmoral, according to the Telegraph's Steven Swinford. That includes Jacob Rees-Mogg MP, Lord President of the Privy Council.

Jacob Rees-Mogg, Leader of the Commons, and Mark Spencer, the Chief Whip, flew to Balmoral this morning for Privy Council meeting with Queen on proroguing Parliament

The decision has been made and short of something remarkable (ie Queen reversing decision) it's happening

1.32pm BST

Shares in UK housebuilders are falling more sharply now - with Barratt Developments and Taylor Wimpey both shedding 4%.

1.24pm BST

Fiona Cincotta of City Index predicts further losses for the pound, if Johnson can't make progress on replacing the Irish backstop.

She writes;

After reaching $1.23 in the previous session sterling tanked to a low of $1.2157 on Bojo's Parliament suspension plans.

Under these circumstances we expect the bears to remain in control of the pound. Any bad news from Brussels regarding Irish backstop alternatives as talks kick off over there could send the pound tanking back towards the key psychological support of $1.20.

12.55pm BST

Here's our news story on sterling's slide today, as the government moved to suspend parliament ahead of a Queen's Speech in mid-October.

12.53pm BST

The pound is the worst-performing major currency today, Bloomberg reports.

And things could get worse. A recent Bloomberg survey forecast that the pound could fall to $1.10, from $1.22 today, after a no-deal Brexit.

"It just underscores the veil of uncertainty the pound is facing, the still non-negligible risk of no-deal Brexit and the vulnerability of the currency to negative headline news."

Pound Falls as Boris Johnson Seeks Parliament Suspension Before Brexit https://t.co/7QmPU4VxPU pic.twitter.com/EmW39Pv2HT

12.46pm BST

The imminent suspension of parliament will intensify calls to protect businesses from the disruption that a disorderly Brexit would cause.

Already today, firms have asked the Irish government for a1bn of support, to cushion the blow of a "Brexit shock" after a no-deal exit.

They want a slice of Ireland's unprecedented a10.4bn (9.4bn) corporate tax intake earmarked for business trading in both directions that will be hit by tariffs, delays in Calais and Dover and other challenges in the event of the UK crashing out of the European Union on 31 October without a deal.

John McGrane, the director general of the British Irish Chamber of Commerce (BICC), said: "By redirecting a1bn from the larger than expected corporate tax intake into a Brexit response fund, government can shore up indigenous businesses which are most at risk from a disorderly Brexit.

12.31pm BST

Analysts at Royal Bank of Canada have warned that the probability of a no-deal Brexit has risen to 44%, based on today's market moves.

RBC's chief currency strategist, Adam Cole, says this is a new high, and a move that is matched by the euro's rally against the pound today.

Using our usual proxy markets as a barometer, the net effect of this morning's UK news has been to push the probability of no deal exit to a new high of 44% (blue line) and we note that (focusing on daily changes rather than levels), GBP price action still closely mirrors shifts in this probability.

Today's developments make exit with no deal marginally more likely (and some will say reveal a government preference for no deal), but it is still far from a certain prospect while parliament has possible routes to block it and while the possibility (albeit slim) still exists that Johnson could extract a deal from the EU that parliament can support.

12.19pm BST

A renewed Brexit crisis increases the danger that Britain's economy falls into a technical recession this autumn.

We learned earlier this month that UK GDP contracted by 0.2% in April-June, as companies ran down stocks build up ahead of the original Brexit deadline of 29th March.

Britain's 0.2 per cent GDP contraction in the second quarter represents the worst economic performance of any of the 24 major nations which have thus far reported their Q2 numbers pic.twitter.com/aBVeqsOpcP

When you look in annual terms, UK GDP growth isn't at the very bottom of the developed world league table, but it is comfortably in the bottom half pic.twitter.com/7nXTuBZcS7

12.03pm BST

Brexit angst is also pushing down the FTSE 250 stock market index of medium-sized, mainly UK focused companies.

It has fallen by 0.8%, or 155 points, this morning to 19,179 points.

11.37am BST

UK businesses are watching events in parliament with growing frustration and alarm, judging by this statement from Dr Adam Marshall, director general of the British Chambers of Commerce:

"Businesses feel like Westminster is playing an endless game of political chess, while their futures and the health of the UK economy hang in the balance.

"Every move in this game is prompting more questions, not just amongst businesses here at home but also amongst their partners around the world. Out in the real world, continuing political turbulence is taking a toll on contracts, on investment decisions, and on business confidence. Three years on, the damage continues.

11.31am BST

Here's our news story about the government's plan to suspend parliament next month:

11.28am BST

The pound has now fallen through a1.1 against the euro, after the House of Commons speaker John Bercow issued a blistering attack on the government's plan.

That's a one-week low, down 0.7% today, towards the 10-year low of a1.072 struck earlier this month.

Statement from Speaker's Office pic.twitter.com/BGSYCcpxjB

11.19am BST

German bank Berenberg isn't convinced that suspending parliament strengthens Boris Johnson's hand.

The argument is that preventing MPs blocking No Deal makes the threat more credible, forcing Brussels to compromise and drop the Irish Backstop (which keeps the UK aligned with the EU if a free trade deal isn't agreed after Brexit).

In a way, a need for a Prime Minister to suspend his own parliament because he seems to lack a majority for his key policy - the approach to Brexit - is not exactly a sign of strength, to put it mildly.

11.06am BST

City investment management firm Brooks Macdonald has warned clients that the risk of a no-deal Brexit is rising.

It is maintaining an "underweight" rating on UK assets -- a polite way of saying they they're assessing British stocks with a lengthy bargepole.

With only 22 scheduled business days for the House of Commons between now and the Brexit deadline, removing around a third of these will cause procedural issues for opposition plans to legislate to prevent a no deal Brexit.

Sterling's reaction has been for a sharp fall vs both the dollar and euro from already suppressed levels. Domestic focused UK stocks have underperformed International peers as the heightened risk of a no deal secession begins to be priced into markets.

10.56am BST

Mujtaba Rahman, analyst at Eurasia Group, says Boris Johnson has dramatically raised the stakes in his battle with MPs trying to stop a no-deal Brexit.

Now that Boris has gone nuclear, it may require MPs to switch back to their own nuclear option-passing a no-confidence vote in the Government next week.

The PM's aides insist it is normal for a new Government to hold a Queen's Speech and deny the charge of suppressing debate, though few MPs will believe that.

10.49am BST

Johnson has now written to MPs, confirming that he will seek to suspend parliament in the "second sitting week of September".

That will be shortly after MPs debate Northern Ireland on the 9th September.

NEW - Boris Johnson letter to all MPs: pic.twitter.com/ap79taa1Jq

10.26am BST

Prime minister Boris Johnson has now confirmed that the Queen's Speech will be delivered on 14th October.

That means parliament will be suspended at some stage ahead of that date.

10.19am BST

Hmm #sterling is not taking this news well #prorogue pic.twitter.com/24kKVxUCde

10.14am BST

The plan to suspend parliament until mid-October has damaged hopes that the UK could avoid crashing out of the European Union without a deal, says Ricardo Evangelista, senior analyst at ActivTrades.

Sterling rallied yesterday, after opposition leaders had agreed on a strategy to prevent a no-deal Brexit, but has lost all those gains this morning.

The markets regard no deal as the worst possible outcome for the British economy and news that there will be a cross party effort to counter Prime Minister Johnson's plans to leave on the 31^st of October no matter what, were enough to fuel Sterling gains of nearly 0.5% to the Dollar.

However, these gains have been completely cancelled during early Wednesday trading, as reports emerge that Boris Johnson will ask the Queen to suspend parliament from mid-September until mid-October; a move seen as a way to ensure his plans of a no-deal Brexit are executed, without interference from MPs opposed to such an outcome.

10.01am BST

Shares in some UK-focused companies are also dropping, hit by fears of a no-deal Brexit.

Housebuilders are among the top fallers on the FTSE 100 index, with Taylor Wimpey and Persimmon both losing over 2%.

9.59am BST

You know things are getting serious when MPs are tweeting graphics of the pound-dollar exchange rate:

Sterling now. pic.twitter.com/AyWa374Jgc

9.53am BST

The pound has now hit a one-week low against the US dollar at $1.218, down more than a cent today.

Naeem Aslam of Think Markets says they could be further losses, if the Queen agrees to suspend parliament until the middle of October.

Sterling has fallen off the cliff as investors have become increasing anxious about the Brexit chaos. Boris doesn't want anyone to stop his plan of no Brexit and if the Queen approves his request then there is only his way or the highway.

The ride on this highway is going to be more turbulent than ever and British politicians do not realise this. They have made a circus out of Brexit.

Sterling crushed on reports UK govt. will imminently suspend parliament:#GBP -0.85% against other currencies#GBPUSD 1.21707 -0.97%#EURGBP 0.91135 +0.99%#GBPAUD 1.8039 -0.9%#GBPJPY 128.622 -1.04%#GBPCAD 1.6193 -0.79%#GBPCHF 1.19466 -0.95% pic.twitter.com/SfZqlSAyky

9.48am BST

Prorogation is the official term that marks the end of a parliamentary session. After being advised to do so by the prime minister, the Queen formally prorogues parliament. This takes the form of an announcement in the House of Lords on the Queen's behalf. It is a speech, written by the government, which usually describes the bills that have been passed during that session and summarises what has been achieved.

9.44am BST

City traders are calculating that the risk of a no-deal Brexit has risen, and acting accordingly (by hammering the SELL THE POUND button).

Regardless of whether this is another negotiating tactic or not - No Deal liklihood has increased here.

9.33am BST

The selloff is gathering pace -- with the pound now down almost a whole cent at $1.22.

There have been rumours for weeks that Boris Johnson prorogue parliament, in an attempt to thwart MPs who oppose a no-deal Brexit.

The #pound has plunged again against both #USD and #EUR on rumours on possible suspension of Parliament, something which was not expected by traders of the City.

But, after a sudden sell-off, the situation seems stable now...@graemewearden #forex #trading

9.29am BST

My colleague Frances Perraudin has all the details from Westminster:

9.22am BST

The BBC's Laura Kuenssberg has heard that Boris Johnson's plan is to hold a Queen's Speech - outlining the legislative priorities - on 14th October.

That's just two-and-a-half weeks before the UK is due to leave the EU.

Johnson govt to hold Queen's speech on 14th October, will be confirmed by privy council at Balmoral today - No 10 says it's all biz as usual for a new govt, but has useful political side effect that denies MPs time to try to stop no deal

Parliament likely to meet therefore from next Monday until around the 11th of September - understand Downing St thinks they have some legal protection from court cases if they are suspending Parliament to come back with a Queen's Speech - there is going to be HUGE row

Rebels, including senior Tories, likely now to be even more determined to try to change the law next week - 3rd Sept likely to be a big showdown

9.20am BST

The pound has also dropped against the euro to a1.103, from a1.108 yesterday (a one-month high).

9.12am BST

Newsflash: The pound is suddenly sliding, on reports that Boris Johnson's government is taking steps to prevent MPs blocking a no-deal Brexit.

There's a rumour that Britain's Privy Council (a group of senior, experienced advisors and politicians) will meet with Queen Elizabeth at Balmoral, her Scottish castle, later today to discuss the possible suspension - or proroguing - of parliament.

Is something afoot this morning? Suggestion from more than one source of a Privy Council meeting at Balmoral today, to discuss/agree extending the conference recess until 14 October.
PM chose his words v carefully in Biarritz on Monday when asked about prorogation.

Hearing that the Queen could be asked to agree to prorogue parliament as early as today. She's in Balmoral. Would be done by Order in Council. Only one source. Not confirmed. Watch this space

8.52am BST

The Guardian's latest Brexit dashboard is out today, and it shows that the UK economy faces a turbulent autumn- having already contracted slightly in the April-June quarter.

My colleague Richard Partington explains:

Boris Johnson is heading into the crunch period for Brexit negotiations with the UK economy potentially on the brink of recession and as global economic growth falters, according to a Guardian analysis of economic news over the past month.

The prime minister faces the challenge of breaking the deadlock with Brussels to avoid a no-deal Brexit on Halloween, just as the outlook for the economy deteriorates at home and abroad.

8.45am BST

Worryingly, the US yield curve is continuing to invert this morning.

The gap between 2-year and 10-year bond yields has swelled to 6 basis points, its biggest gap since 2007 (as the financial crisis took hold).

This is a really scary sign for the ecconomy. The 2 year/10 year yield curve is deepening its inversion. pic.twitter.com/uXyqgHkSH1

ICYMI! The 30-year - 3-month US Treasury #yieldcurve briefly inverted for the first time yesterday. pic.twitter.com/oKpwv402W0

8.40am BST

In normal times, the state of the US yield curve would only be of interest to bond traders, as they chase the best possible return while balancing risk.

But once it's inverted, the yield curve becomes a lot more interesting -- because of its reputation as a harbinger of recession.

I fear yield curve inversions are going to become the dinner table bitcoin chat of 2017 in the coming months as prophecy becomes self-fulfilling and we blindly wander into a recession.

Obviously the timing of this is no coincidence, coming so shortly the US and China decided to step it up a gear and inflict additional tariffs on one another. Naturally this was accompanied by fighting talk from Trump, the usual bashing of the head of his central bank and then some very mixed messages from both sides regarding a phone call that may or may not have happened.

8.31am BST

Bloomberg's David Ingles has spotted that the entire spectrum of US government Treasury bonds are now yielding less than 2% per year.

From the 2-year to the 30-year, the treasury yield curve is now below 2% pic.twitter.com/kR7Rj6cOYv

8.23am BST

The Financial Times is also concerned about the US government bond market, saying it is giving "the most dire signal since 2007".

Here's a flavour:

A widely watched US bond market indicator of recession sent its most dire signal since the early days of the financial crisis on Tuesday, reflecting increasing gloom about the economic consequences of the US-China trade war.

Yields on two-year Treasury notes were 5.3 basis points higher than those on the 10-year government bond - the largest gap since March 2007.

8.17am BST

This excellent chart from CNBC shows how US bond yields have fallen sharply in recent months.

7.56am BST

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

US 10-Year minus 2-Year Yield...
Aug '09: 2.43%
Aug '10: 2.10%
Aug '11: 2.08%
Aug '12: 1.37%
Aug '13: 2.34%
Aug '14: 1.87%
Aug '15: 1.50%
Aug '16: 0.78%
Aug '17: 0.83%
Aug '18: 0.18%
Today: -0.04% (first inversion close since June 2007) pic.twitter.com/SWkjbqf9pV

What is the yield curve?

"What is taking place today is that bond investors are realising that lower rates are upon us."

WHAT DOES YIELD CURVE INVERSION SUGGEST?

The 3mo/10yr spread is inverted by 50bps with the old low on this spread being -60 bps in July of 2007. We all know too well what happened post-2007. In our view, this is a highly correlated indicator that a pend"https://t.co/Dgqe7e1blv

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