After a negative start the FTSE had moved into positive territory by mid-morning. The weaker pound was boosting those stocks that earn abroad, whilst a rally in oil was lifting the likes of BP (LON:BP).
After rallying to a four-week high in the previous session on Brexit optimism, the pound has dropped sharply lower this morning. Boris Johnson taking the unusual step to request to prorogue Parliament in order to push Brexit through has struck fear into pound traders. With Parliament in session for just a few days from early September, Boris Johnson is frustrating efforts by MP’s to block a no deal Brexit.
Whilst Boris Johnson has failed to rule out proroguing Parliament on numerous occasions, the latest manoeuvring by the PM shows that he is fully prepared to go through with it. Boris Johnson’s latest move comes following a cross party agreement, led by Jeremy Corbyn, being struck to bring forward legislation next week that could force Boris Johnson to request another extension of Article 50. The timings here are incredibly tight and pound traders are responding to this.
The pound is falling as the probability of a no deal Brexit increases once again.
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
Italy to avoid snap election?
Politics are also in focus in Italy as D-Day has arrived for the forming of a new coalition. The 5 Star Movement and centre-left Democratic party have been trying to create a workable coalition following the collapse of the Italian government last week. These two parties have been bitter enemies until a few weeks ago.
Following an early morning meeting, indications are that the two sides are moving towards an agreement, removing the need for a snap election in Italy. Italian bonds are rising as talks gain momentum, the FTSE MIB is also on higher ground whilst stocks across Europe sink. This looks like a near miss for Italy. After fraught negotiations early indications point to a snap election being avoided. This will keep Matteo Salvini and his big spending plans on the side-lines for a little longer.
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