Brexit day proves pivotal despite extension to April
March 29, 2019
What should have been Brexit day has now become a power play for May as she tries one last time to whip up some more Parliamentary fudge to help kick the can down the road. An EU deadline to pass a deal and trigger a further six-week extension to May 22 expires tonight. The extension is conditional on the Withdrawal Treaty being passed today, without which the UK will leave the EU on April 12 with or without a deal in place as things stand. Under the 2018 EU Withdrawal Act, Brexit cannot be delivered without both the withdrawal treaty and political declaration being passed, hence the short extension should the withdrawal act be passed tonight such that Parliament can find a majority on the political declaration. By omitting the future relationship with the continent from tonight’s vote (political declaration) it cannot technically be dubbed a “meaningful” vote. This play by May could be the government’s best option to get the bare minimum through by dividing and conquering Parliament’s opposition on contentious issues. Opposition to tonight’s vote will focus on the Irish backstop. May will likely threaten a long extension to Article 50 if tonight’s vote isn’t passed, increasing the likelihood of extreme scenarios playing out. These include a no-deal exit, no Brexit and a general election. The individual threats target concerns within the opposition party, the DUP and Tory Eurosceptics, by doing so, a majority may finally be formed for the government’s Brexit plans, but with much uncertainty left to over the future trading relationship.
The euro continued to slip ever closer towards 21-month lows against the dollar yesterday as it weakened for the fifth out six recent trading sessions. The culprit this time can be sought in the soft readings for the German and Spanish Flash Consumer Price Indices. The German CPI for March came in at 0.4% versus 0.6% expected, while the February reading was downwardly adjusted minutely as well. The Spanish reading, expressed in year-on-year figures was 1.3% compared to 1.4% expected. Of course, these misses on themselves are not too dramatic. However, as they come in a week in which the European Central Bank confessed its confidence in strengthening inflation in the medium run is falling, it all adds up to a further downturn in the prospects of the ECB ever being able to escape from their ultra-loose monetary policies. This morning’s Eurozone data has been mixed so far, with a solid beat on German February Retail Spending, but a miss on French February Consumer Spending.
King dollar crowned itself ruler of the G10 currency board again yesterday as domestic US monetary and macroeconomic meekness seems unable to hurt the dollar’s prospects in the slightest. US Q4 Gross Domestic Product Growth was adjusted downward by 0.4% to 2.2% year on year, a tenth of a per cent below expectations. The relatively high yields and growth in the US compared to other G10 economies kept the dollar underpinned, though it probably didn’t hurt either that Federal Reserve’s John Williams and James Bullard sang some hawkish notes for a change. Williams downplayed recession fears showing up in bond markets, while Bullard labelled calls for 2019 rate cuts as premature and said he expects US Q2 growth to rebound after a slower first quarter. Today the Fed’s favourite inflation gauge is on the menu, with Personal Consumption Expenditures at 12:30 GMT, followed by the Chicago PMI at 13:45 and Revised University of Michigan Consumer Sentiment at 14:00.
Oil posted another day in the red yesterday after Donald Trump tweeted that OPEC needed to open the taps with oil prices being too high. Peaking at only $60.39 in 2019, this doesn’t come as music to the crude market’s ears and prompted the loonie to post further losses against a surging US dollar. Today, at 12:30 GMT January’s Gross Domestic Product reading is released with an uptick in growth from 1.1% YoY to 1.3% YoY expected.