Much of the focus for markets last week was on the UK House of Commons and its vote on PM Theresa May’s Brexit Withdrawal Agreement bill. The outcome of that vote was a resounding rejection of her deal – much larger than forecast, plunging the UK into a period of political and economic uncertainty. The defeat of May’s Brexit withdrawal agreement was the largest defeat for a government in 100 years.
After surviving a no-confidence motion last week, Prime Minister May will inform the House of Commons this week as to how the government plans to proceed on Brexit (Plan B) which will probably involve a determined effort to renegotiate with the European Union and an extension to the 29 March Brexit deadline. The majority of the UK Parliament is against a no deal Brexit and both major parties don’t want to have another Brexit referendum so this provides some hope for a cross-party agreement to be reached….we shall see.
Locally, there are an increasing number of economists calling for the RBA to cut rates in the wake of Australia’s deepening housing downturn and a potentially lower GDP growth as a result. Upcoming December quarter CPI data is also expected to remain below the RBA’s target range which will add more justification for an RBA move. This view however still remains the exception with the majority of economists still believing the next RBA move is up, although futures markets have begun to price in a small chance of a rate cut (30% probability by July 19).
And to end on a positive, positive signs over the weekend that there will be a favourable outcome to the US-China trade negotiations saw the US Dow Jones index post a 336 point rally on Friday night. This will see our share market also post a solid gain for the start of this week.