9 months after taking 5,000/1 odds for Leicester to win the Premier League title, Claudio Ranieri has been given the sack, yet Jeremy Corbyn clings to power this morning after presiding over yet another embarrassing by-election defeat after losing Copeland to the Tories. It’s the first time a government has gained a seat in a by-election since 1982 and the first time the Tories have won this particular seat since its creation in 1983.
A snap election would surely see the Labour party routed in a general election. However, following the Fixed-Term Parliaments Act, a snap election can only be called when a 2/3 majority of MPs vote for it or the government loses a confidence motion. Labour’s lukewarm opposition to May’s Brexit proposal is a function of realpolitik- an acknowledgement that a snap election would be political suicide and an increased majority for the Conservatives. As such, the political risk for sterling continues to recede or at least be better understood which is in stark contrast to the situation in France where the political risk has increased into the French presidential election.
The price of options to protect against euro weakness has spiked over the past month with the cost of buying an option at its highest over the period of April to May when the French presidential elections’ take place suggesting that markets are increasingly concerned with about the risk this event poses.
This increased risk aversion towards the euro hasn’t been reflected in the spot FX market yet which has been largely range bound over the past few weeks, however it does suggest there is an underlying sensitivity in the market towards gains made by Le Pen and will trade the euro with a negative bias into the election. This bodes well for sterling which should test the resistance levels around 1.20-1.21 (0.825-0.835) which have capped sterling gains since the EU referendum last summer.
For today, there are no market moving data items slated for release but updates from the major rating agencies on Greece (remember them?) will be important. In tandem with these releases, we also have the Greek Central Bank Governor providing an update on economic policy and outlook