Sterling takes another Boris bashing
This week had the potential to be one of the quieter of the summer but the various political soap opera’s around the world have once again ensured we will not go without drama.
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On Wednesday, Boris Johnson took the highly controversial decision to suspend Parliament for around five weeks until the middle of October, when the Queen’s speech will reveal the legislative agenda of his new government. While proroguing Parliament isn’t itself unusual, this will be the longest suspension since 1945 and comes at a rather suspicious time.
Despite what number 10 would have us believe, it’s quite clear that this move is a highly political one aimed at preventing MPs from blocking no-deal, forcing individual’s to show their hand and at the same time, sending a message to Brussels that the government is serious about leaving on 31 October.
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Naturally, the more convincing Boris is, the faster the pound falls. Put simply, no-deal is the most severe form of Brexit and until we better understand how it will be handled, worst case scenario’s will continue to be priced in. Brexit may have already taken a heavy toll on sterling but darker days probably lie ahead for the currency.
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Italian investors buoyed by coalition agreement
Italy – often a source of political instability for markets – is giving us quite the opposite this week, after Five Star Movement and the Democratic Party agreed to form a coalition government following days of talks. The agreement means we won’t have an election in the Autumn and any budget confrontation with Brussels later this year may be less fierce than last.
The two parties still very much have their differences and it’s unlikely to be a harmonious relationship but it will likely be a better match than the last. Markets have welcomed the move that ensures some political stability for now, with Italian yields falling considerably and pushing up to two years of the yield into negative territory.
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Craig Erlam
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