BNY Mellon: December

3 dec 2018

By Simon Derrick, Chief Currency Strategist, BNY Mellon

Since the start of the 1970s December has proved one of the less dangerous months for markets.

With realized volatility spiking in everything from Brent crude to EUR/GBP, however, it’s worth considering quite how crowded the month ahead is with risk events.

Thursday, December 6: 175th (Ordinary) OPEC Meeting in Vienna

Saudi Arabia’s energy minister Khalid al-Falih noted that OPEC and its allies will do “whatever is necessary, but only if we act together”.

He also noted that “everybody is longing [to] reach a decision that brings stability back to the market,” but added that Saudi Arabia “will not do it alone”.

Alexander Novak, Russia’s energy minister, said on Thursday that with OPEC “we will find a coordinated and consolidated decision that will benefit the oil market”.

Friday, December 7: Potential US government shutdown

December 4-11: UK House of Commons debate on EU withdrawal treaty

The debate allows for amendments to the government’s motion to be discussed. Up to six amendments will be selected on the final day to be voted on.

The Labour party has tweeted that the debate will conclude at 1900 GMT on December 11.

Sunday, December 9: Potential UK Brexit TV debate

Date accepted by Prime Minister Theresa May to take part in a BBC debate on Brexit. However, Labour sources say the party has not yet agreed to take part.

It’s conceivable this could take place around the time of the market open in Asia.

Tuesday, December 11: Vote in UK House of Commons and House of Lords on EU withdrawal treaty (post-1900 GMT)

Amendments will be voted upon first, before the final vote on whether to approve the withdrawal agreement. Any amendments would not be legally binding on the government.

Based upon what is known, the government might struggle to get much more than 278 votes in favor of the deal while those voting against it could reach 361.

If Parliament rejects the deal then ministers will have up to 21 days to make a statement to the Commons on "how it proposes to proceed".

The government would then have a further seven days to move a motion in the Commons, allowing MPs to express their view on the government's course of action.

It is possible that in this three-week window the government could make a second attempt to get the deal through Parliament.

Wednesday, December 12:

The UK's Labour Party’s official stance is that if the vote on December 11 in the House of Commons is defeated then it will push for a general election.

There is consequently a chance that the party will look to call a confidence motion in the government. Given the current make up of Parliament (316 active Conservative lawmakers compared to 313 on the opposition benches) it would take 4 DUP MPs to vote against the government (rather than just abstaining) to pass a motion of no confidence.

If a motion of no confidence in the government is passed by a simple majority and 14 days elapse without the House passing a confidence motion in any new Government formed, then a 25 working day countdown to a general election kicks in.

Alternatively, a motion for a general election is agreed by two-thirds of the total number of seats in the Commons including vacant seats (currently 434 out of 650).

Shadow Chancellor John McDonnell told the BBC: "We want a deal that will protect jobs and the economy. If we can't achieve that - the government can't achieve that - we should have a general election, but that's very difficult to do because of the nature of the legislation that David Cameron brought forward. If that's not possible, we'll be calling upon the government then to join us in a public vote. It's difficult to judge each stage, but that's the sequence I think that we'll inevitably go through over this period."

When asked if a vote of no confidence did not bring down the government and lead to a general election, whether a second referendum was "inevitable", McDonnell replied: "That's right".

A second referendum can only happen if the government brings new legislation to hold one and secures the approval of a majority of MPs.

The Electoral Commission's recommendation is that there should be six months between the legislation being passed and referendum day.

This could be shortened. The UCL Constitution Unit, a research center on constitutional change, suggests that could be 22 weeks.

Thursday, December 13: EU summit & ECB meeting (concludes 1245 GMT)

ECB expected to finally wind up its bond purchase program.

Wednesday, December 19: FOMC meeting concludes (1900 GMT)

Currently an 82% chance of a 25 bp hike being priced in.

This is also the date reportedly being considered by the EU executive Commission to recommend the formal opening of a disciplinary procedure against Italy regarding its 2019 budget.

Thursday, December 20:  BOJ and BOE (1200 GMT) policy meetings conclude.

December 20 to January 7, 2019: Scheduled UK Parliamentary recess

Monday, December 31: Last date for the UK government to make a statement to the Commons on "how it proposes to proceed" should the vote fail on December 11 (This is open to interpretation - it is possible that this date could be pushed out into the New Year).