It turned out to be a broadly positive start for European markets yesterday with the FTSE 100 leading the way, and the DAX underperforming. US markets also had a good session, with the S&P 500 building on last week’s break higher above 2,820, helped by expectations of a dovish tone from the US Federal Reserve when they conclude their policy meeting tomorrow.
If House of Commons speaker John Bercow had wanted to drop a hand grenade into the heart of the Brexit process, he couldn’t have done it better than with his actions yesterday when he ruled that another meaningful vote on Prime Minister Theresa May’s withdrawal agreement, which could well have taken place today, would not be allowed without significant changes to what was voted on previously.
In so doing he blew out a key pillar of the prime minister’s Brexit strategy in trying to force recalcitrant Brexiters to back her agreement. In closing off that part of Mrs May’s strategy, he has also made it much less likely that EU leaders will grant a short-term extension when they meet later this week. This is because any short-term extension would have been based on finally getting the prime minister's deal across the line. This is now unlikely to happen, though given the voting arithmetic the deal never looked likely to pass on a third reading anyway. In a way Bercow has put the deal out of its misery.
What his intervention has also done is raise the stakes considerably, as the only two options now in the control of parliament are a no-deal scenario, or a decision to revoke article 50, thus overturning the June 2016 referendum result.
The current default position remains for the UK to leave without a deal. In the absence of any EU acquiescence when it comes to granting an extension, the UK can ask as many times as they like for one; it doesn’t mean they will get one, and if they do it could well come with conditions attached. In the absence of an agreement to extend from the EU, the only way for MPs to stop Brexit from happening now is to vote to revoke article 50, which is one decision they won’t be able to kick down the road.
Despite all of this added uncertainty the pound managed to hold up fairly well, despite sliding back on the day, presumably because markets think that when it comes down to it MPs will finally act and pull back from the precipice of a no deal. The danger now is that the speaker continues to insert himself into the centre of the Brexit process, in a way that could precipitate a full-blown constitutional crisis, as well as prompting accusations he is acting in a partisan way that could be beyond his powers.
On the data front the UK economy has continued to hold up well, despite the political dysfunction and chicanery currently playing out at Westminster, with the latest unemployment and wages data for the three months to January due today.
The unemployment rate is expected to remain steady at 40-year lows of 4%, while average weekly wages excluding bonuses are expected to come in at 3.4%, unchanged from December, matching the highest levels since the financial crisis.
One of the big surprises has been the resilience of the labour market in the last few years, and despite all the reports of job losses in retail and banking in recent months, employers across a number of other sectors have consistently reported difficulty in filling vacant positions.
The German economy has found life difficult in recent months, buffeted by concerns over trade, whether it be a slowdown in China, Brexit risks or tariffs, as well recent changes in diesel emissions standards. German businesses, as well as investors, appear to be hunkering down and today’s ZEW survey for March is expected to reinforce that defensive posture with its twelfth negative reading in succession.
EUR/USD – continues to look supported for now, edging back towards the 1.1400 area, with resistance at the 1.1360 area and 50-day MA. Support remains back at the recent lows of the 1.1180 area and 61.8% retracement of the entire 1.0340/1.2545 up move.
GBP/USD – slipped back again yesterday, finding support at the 1.3170 area with support below that at 1.3030, which is trend line support from the 1.2430 December lows. We also have support back down near the 1.3000 area and the 200-day MA.
EUR/GBP – looks on course to retest the 0.8620 area in the short term after last week’s 22-month lows at 0.8475. While below 0.8620 the euro remains vulnerable to a retest of the lows. A break below 0.8470, has the potential to target the 200-week MA at 0.8390.
USD/JPY – appears to be becalmed for now with the recent highs at 112.20 and support at 110.80, the key levels on each side of the broader range. Yesterday we saw a 34-point range between 111.63 and 111.29 with little in the way of overall direction. A move below 110.80 runs the risk for a return towards the 110.20 level.
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