Deadline day for May
March 12, 2019
Sterling spent most of yesterday’s session batting off speculation that the meaningful vote would not occur. Alas, With the threat of being held in contempt, May clarified that the meaningful vote on her deal would go ahead, only to whiz off to Strasbourg to meet President Juncker to strike a last-minute concession. The President of the European Commission finally gave reason for optimism for May, who did tremendously well to hold back a smile on the press conference. The deal outlines that the UK could kick start the process of exiting the Irish backstop unilaterally, only to go to an independent arbitration committee should the EU reject the UK’s proposal. Juncker stressed that this was the best the EU could do to try and help May pass a deal domestically and that such a compromise is only valid for this meaningful vote attempt. Sterling shot up nearly 2 points on this announcement as the probability of a deal being passed increased. All eyes will be on the Attorney General, Geoffrey Cox, and his legal advice on the matter prior to Parliament sitting at 11:30 GMT. From there, investors will be weighing up the likelihood of a deal being struck as Parliament battles in the House of Commons and Brexit noise increases. The pound is likely to be highly volatile today as the Brexit headlines come thick and fast prior to tonight’s vote at around 19:30 GMT.
The single currency failed to profit from increased optimism around Brexit that swept over news wires all over the world. This got the German Industrial Production figures drowned out in the noise, which is not unsurprisingly given that January’s miss was virtually completely compensated for by a positive revision for December. Additionally, Germany’s trade balance worsened mostly due to a 1.5% jump in imports, which can be seen as a minor positive if shows that the domestic economy produces ample demand, while the slowdown in external demand for German products may have bottomed out for now.
The dollar took on water yesterday against most of the G10 currencies with the exception of JPY and CHF despite a strong Retail Sales reading for January. However, the downward revision to December’s Retail Sales implies a 0.2% downward revision to Q4 growth that currently sits at 2.6%. This doesn’t bode well for the Trump administration that forecasts growth above 3% for 2018 – 2020. Today see’s the release of the Consumer Price Index measure of inflation for February at 13:30 GMT, with many analysts expecting a gradual pickup in underlying inflationary pressures. This may come as music to the Fed’s ears, despite them not solely looking at the CPI measure of inflation like other G10 central banks, who have recently turned dovish amidst a deteriorating global environment. This may see the DXY dollar index pop back up towards the recent high it posted on Thursday.
The loonie continued to make ground back against the US dollar yesterday but shows no real resistance to last week’s strong USD rally. With little in the data calendar this week, investors will be keeping a close eye on developments in the crude market. WTI crude has failed to break its tight $54-57 range despite Saudi Arabia pledging to extend deep supply cuts into April.