Plan A? Plan B? It all looks the same to me
January 22, 2019
Volatility increased when May stood up in Parliament to announce her “plan B” which looks awfully like plan A but with a set of fake glasses and a moustache on. However, the final shape of the backup plan will only start to take a new form once the voting on amendments commences on the 29th January. When asked about following the will of Parliament, which could see them vote on a customs union next week, May sounded more open than previously. The customs union, if agreed by both Parliament and the EU, would settle the debacle on the Irish border and deliver a softer than anticipated Brexit by allowing the free movement of trade within the single market. With May not ruling out this stance should it be voted through next week, while also suggesting that an extension in Article 50 is not off the table, sterling rallied some 0.5% in the space of minutes. The distaste by members in the House of Commons for a no-deal Brexit has become increasingly more apparent, and despite May not ruling the possibility of a no-deal out categorically, the probability of the scenario playing out looks increasingly less likely by the day.
The International Monetary Fund cut its growth forecasts for the Eurozone for 2019 by 0.3% to 1.6%, however, the euro seems to have become somewhat inoculated against bad news and didn’t budge much. The lower economic forecast was mostly caused by weak German consumption and softening factory output, while Italy’s cut in the growth outlook was even accompanied by a warning from the fund to the Italian government. The lower forecast for the expansion in the French economy due to the yellow vest protests then completed the trinity of downward projections for the Eurozone’s three largest economies, indicating the IMF sees mostly dark clouds gathering over the Eurozone. The German ZEW Economic sentiment will be released at 10:00 GMT and is the first of three major surveys on the German economy this week, with the Flash Purchasing Manager Index on Thursday and the Ifo Business Climate on Friday. Hopefully, they bring a ray of hope for the economic prospects of Europe’s largest economy.
Yesterday the dollar benefited from some strength against most of the G10 currencies despite no breaking news taking place on the relatively calm Martin Luther King bank holiday. Regardless, the waters remained agitated in the US, with the government shutdown entering its fourth week and Donald Trump refusing to attend the World Economic Forum starting today in Davos. At this event last year we saw a strong stance of the US President welcoming business to the country. One year later, a slowing economy, uncertainty from trade war tensions and political unrest at home are dominating the overall picture. Today we will be reading data on existing home sales at 15:00 GMT.
It was definitely a very blue Monday for the loonie yesterday as it faith completely reversed compared to Friday. CAD bottomed the G10 currency board yesterday, where it was still unchallenged at the top of the board on Friday. In the absence of data being released, or wild swings in the oil price, it’s a bit of a scramble to find reasons for yesterday’s move. Given the moves on CAD pairs where relatively small and the volumes traded low, we may see somewhat of a reversal today. Manufacturing Sales at 13:30 GMT can be one of the drivers for this.