FTSE down as UK government survives vote of no confidence

The FTSE opened lower this morning and the pound weakened against the dollar and the euro as Britain emerged from yet another Brexit-induced political crisis after Theresa May’s government survived a no-confidence vote called by Labour last night.

Sterling rallied to $1.2896 in the immediate aftermath of the vote but following some sideways trading overnight it plunged in early London trade only to start regaining ground this morning. The rally was no surprise as the markets have been pricing in that the PM would survive the vote. The pound/euro moves followed the same trajectory as cable but were less volatile.

This morning’s FTSE chart reflects the same sense of bafflement that is dominating UK politics right now as it remains unclear what will happen next. The index opened lower only to surge up and then repeated the same sharp up and down move in the first half hour of trading. The result of the vote should mean marginally more stability over the next few days as the government pushes on with a Brexit proposal in some form.
Given that her Brexit proposal was soundly rejected on Tuesday Theresa May now has until Monday to come up with a Plan B. She is expected to meet with opposition leaders Thursday to try and find more middle ground before heading to Europe for further negotiations.

Asian stocks traded higher, taking their cue from a strong Wall Street close helped by strong results from major banks. However, Asian gains were muted by news that the US is planning a probe into China’s Huawei over alleged stealing of trade secrets from US companies.

Societe Generale warns of fourth quarter fall

The French bank has warned that it expects its business to have declined 20% in the fourth quarter of 2018 and by 10% for the whole year because of the challenging environment in global capital markets. Soc Gen’s revenue decline mirrors similar results reported by US banks Citigroup and JPMorgan earlier this week, all of their trading books hit by the rollercoaster in the US markets in the pre-Christmas weeks.

The manic up and down in the markets had been sparked by the expectations that the Federal Reserve’s strict interest rate hiking plan for 2019 would unduly slow down the US economy. However, with the Fed changing tack before year end bond markets seem to have returned to a more sedate pace of trade. So far only Goldman Sachs and Bank of America managed to defy expectations and post a higher-than-expected fourth quarter earnings statement. Morgan Stanley is due to report later today and the market is skewing towards stronger results.

In Europe, however, banks are more likely to replicate Soc Gen’s results, particularly major banks with large trading portfolios. Deutsche Bank’s investment bank unit has already reported one of the worst years since the financial crisis.

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