Weekly Edge: Prime Minister May Survives No-Confidence Vote

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by: Invest With An Edge
Summary

Tuesday's vote was a clear sign that the U.K. parliament does not approve of the deal in its current state.

Many supporters of Brexit believe the deal's requirement that the U.K. stay within the EU's customs area would greatly restrict its ability to enter trade deals with non-European countries.

Many detractors of Brexit desire another referendum to see if the people of the U.K. still want to leave the EU.

The global economy may look significantly different depending on what path the U.K. takes.

By Troy Tanzy

Co-authored by Daniel Poppe

On Tuesday, the U.K. parliament overwhelmingly rejected Prime Minister Theresa May's Brexit plan for removing the nation from the EU. There were 432 votes cast against the plan, while only 202 votes were cast in favor of it, according to The Wall Street Journal. The vote went so badly for the Prime Minister that opposition party leader Jeremy Corbyn decided to call for a no-confidence vote against her leadership. May's government won that vote on Wednesday with a vote of 325 to 306, reported NPR.

The Brexit plan that was rejected had previously been negotiated and agreed upon by Prime Minister May and leaders of the EU, pending the approval of the U.K. and European parliaments. Tuesday's vote was a clear sign that the U.K. parliament does not approve of the deal in its current state. The Journal sheds light on why so many "no" votes were cast.

Many supporters of Brexit believe the deal's requirement that the U.K. stay within the EU's customs area to avoid a hard border re-emerging between Northern Ireland and the Republic of Ireland would greatly restrict the U.K.'s ability to enter trade deals with non-European countries, such as the United States. Many detractors of Brexit desire another referendum to see if the people of the U.K. still want to leave the EU.

With the no-confidence vote behind her, Prime Minister May's next challenge will be to pitch her back-up plan for exiting the EU smoothly to parliament on Monday (1/21). The nation is supposed to exit the EU by March 29, but that deadline may need to be pushed back if the rejected deal needs to be substantially changed.

The nature of the U.K.'s exit from the EU will determine what the U.K.'s trade relationship with the U.S. looks like in the future. Under one plan, the U.K. may have to follow the same rules that the U.S. has with the entire EU. Under another plan, the U.K. may be able to craft its own set of rules with the U.S. and other trading partners. The global economy may look significantly different depending on what path the U.K. takes.

Sectors: The average momentum score for the Sector Benchmark ETFs rose again for the week, jumping from -58.82 to -27.18. Domestic equity markets had another strong week, and momentum appears to be moving in a positive direction, a sign of relief coming off a difficult fourth quarter. Consumer Discretionary, while still negative, climbed 48 points, ascending to the top spot in the rankings this week. Other notable moves include the Utilities sector's fall from third to 10th place and Real Estate's move from 10th to fifth place.

Factors: Among the Factor Benchmark ETFs, the average factor score increased from -57.58 to -24.67. Strong market performance enabled High Beta to skyrocket by 51 points, kicking Sustainability out of the top spot. Low Volatility fell from number two to number seven. Small Size and Value remain near the bottom as the market continues to favor large growth stocks.

Global: The average Global Benchmark ETF momentum score saw another significant increase, this time from -31.73 to -6.64, a more than 25-point change. Global markets had positive weeks, and each of the 11 global regions increased for the week. Latin America moved further into positive territory, joined by the Pacific Region ex-Japan and Emerging Markets. USA remains in the bottom spot; however, continued equity market outperformance could push the USA up in the rankings in coming weeks.

Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.