We’ve seen another strong session in Asia this morning and this looks set to filter through into Europe this morning as global investors get used to the slightly calmer tone on trade between the US and China this week, after China said it was open to a US visit for further talks.

The pound has also managed to hold onto its gains in the wake of last night’s confidence vote which saw Prime Minister Theresa May fend off a challenge to her leadership. While the vote was conclusively in her favour, by 200 votes to 117, the fact that over one third of her MP’s voted against her, despite knowing that she wouldn’t be standing at the next election, means that it is highly unlikely that the Brexit withdrawal agreement will be able to make it through the UK parliament whatever tweaks the PM is able to wrangle out of EU leaders.

In a sense while last night’s vote has made her position stronger in terms of she can’t be challenged again for 12 months, it also starkly illustrates how split the Conservative party is on this issue and means that MP’s on all sides need a plan B. While some have praised the Prime Minister’s resilience and stubbornness, particularly since Chequers, there is a sense that she continues to resemble the “Black Knight” in the Monty Python sketches, as she tries to bring her warring party together.

With every “flesh wound” she seems able to bounce back but last night’s vote has brought home rather starkly just how tough a task she faces, as her authority slowly crumbles away, in the face of a dysfunctional party and a dysfunctional parliament. 

Having successfully navigated last night’s confidence vote, the PM is set to head back to Brussels and the EU summit to discuss the Irish backstop, however it doesn’t seem likely that we’ll see much evidence of any progress before Christmas, if at all before January, which means we’re back at where we were at the beginning of the week in terms of options, however the defeat of the PM’s opponents does suggest that the risks of “no deal” Brexit may well have receded somewhat, with the next focus likely to be in an extension of Article 50, a so called people’s vote, or no Brexit at all.

While the UK government faces challenges of its own, the economic environment in Europe is no less challenging given the recent unrest in Paris, over rising living costs, with the French government set to face its own confidence vote later today.

It is against this slowing backdrop of a European economy where both the French and Italian economies are on the brink of stalling that the ECB meets today as they finally call time on their asset purchase program.

ECB President Mario Draghi will have his work cut out in trying to justify doing this at a time when there is increasing evidence that inflation and growth are falling back, while also maintaining the pretence that somehow rates will start to rise at the end of 2019. That policy stance is becoming increasingly less credible and while he can probably point to rising wages growth it is quite clear that economic risks are rising, which is likely to see the ECB downgrade its inflation and GDP forecasts for next year.

If they were to do that it would make it very difficult for them to not push their forward guidance for rates out into 2020, while also raising the prospect that we might see the introduction of new TLTRO’s.

The SNB is also meeting today and left rates unchanged at -0.75%.

On the companies front Deutsche Bank shares have continued to climb on yesterday’s reports that the German government is looking at ways of combining it with Commerzbank. While there has been no official comment from government officials the fact these reports keep resurfacing suggests that there is a great deal of concern about the ability of Germany’s biggest bank to claw its way back to financial stability.

While a merger might on the face of it seem like a good idea these sorts of forced marriages rarely work well, particularly since they are usually done from a position of weakness. Merging two vulnerable banks does not a strong bank make and given what happened in Spain with Bankia you would have thought that lessons would have been learnt. You don’t resolve two large problems by creating a giant big one.

The travel sector has enjoyed a rare respite this morning after TUI Travel reported Q3 numbers that were better than expected, increasing turnover by 6.3% to €19.7bn, and above expectations. The company also said it expected to see 2019 earnings growth of at least 10%, and planned to increase airline capacity, sending the shares higher in early trade, and also providing a positive lift to Thomas Cook shares which have also risen sharply.

US markets look set to open higher this morning carrying over the positivity of the last couple of days.  On the earnings front in the US we have the latest Q1 numbers from US retailer Costco. US retailers in the main have had a slightly better year than their UK counterparts, nonetheless the challenges facing them are no different to those facing UK retailers. The difference is that they appear to have been more successful in dealing with the myriad of problems facing the sector from disruptors like Amazon. Costco shares are not far from multi year highs and as such has proved itself to be one of those able to adapt a changing retail environment, with net and same store sales both rising when they reported their full year results in October. Expectations for the beginning of the new financial year are for Q1 profits to come in at $1.617c a share, a significant decline from the $2.36c seen at the end of Q4.

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