UK: Poor speech from PM May - BBH

UK Prime Minister May had bad fortune in delivering a poor speech to the Conservative Party conference last week, according to analysts at BBH.  

Key Quotes

“Ignore a cough, the distracting falling letter of the backdrop, and the prank.  Her two main proposals, boosting social housing spending and capping household energy bills, were lifted from the opposition.  Since losing the Tory majority in the general election a few months ago, May has struggled to rebuild the confidence that had been shaken.”  

“Tory Party rules governing a leadership challenge have changed.  Essentially, the rules require 15% of the Tory members of parliament (or 48 MPs) to call for a leadership contest.  Shapp, a former head of the Tory Party and comparable to "stalking horse" previously, is collecting the letters advocating a leadership challenge.  Reports suggest he has around 30 such letters.  There is no time limit for the other 18.”

“Sterling has dropped six cents since September 20 to approach the psychologically important $1.30 level.  There are two sources of vulnerability.  First, the decline in sterling has not been accompanied by a shift in interest rate expectations.  Drawing from the OIS, Bloomberg calculates a 76% chance of a hike in November and a nearly 80% chance of a hike before the end of the year.  The implied yield on the December short-sterling futures contract slipped from 56 bp on September 20 and closed at 52 bp before the weekend.”    

“If sterling's first vulnerability is a downgrade of the perceptions of the likelihood of a BOE hike, the second is speculative market positioning.  The CFTC latest reporting period covered through October 3.  Over the five-session period ending on October 3, sterling fell two cents, but in the futures market, speculators reduced their gross short position by 20% or nearly 15k contracts.  The net long speculative position rose to nearly 20k contracts, the largest in three years.”