PM May forced to seek longer Brexit extension

Summary:

  • British MPs voted narrowly in favour of forcing PM Theresa May to seek a longer Brexit extension
  • Some leaks from US-China trade talks suggest Beijing would be granted several years to meet targets imposed by Washington
  • FX, bonds, currencies stay little changed in early European trading

Longer Brexit extension

The House of Commons voted on Wednesday’s night in favour of forcing Prime Minister Theresa May to seek a longer Brexit extension so as to avoid a no-deal scenario. It is worth noting that even aspects like this cannot gather a substantial majority in the House as the vote was 313-312 in favour of the bill. Now, Lords need to approve this legislation to become law. In practice, this means that PM Theresa May will be forced to seek a Brexit extension well beyond April 12 (taking into account the current position of the EU one may suppose that it would be unwilling to grant a short-term extension because it would then proven to be unproductive). In turn, such a long extension, say more than 2-3 months, would require the UK to take part in the European elections at the end of May. Let us remind that at the end of March the UK was granted the short-term Brexit deadline extension either until April 12 (unconditional) or May 22 (if the House approves the May’s deal). However, it may still avoid crashing out of the block without any agreement (it may get another extension) is the UK agrees to take part in the European elections and promises to propose a different solution to the current logjam. Thus, it appears that the most likely scenario would see the UK participating in the elections next month making the Brexit process yet more complicated. From a financial point of view we did not have any hectic moves in the British pound and it keeps moving between 1.30 and 1.33. On the other hand, it needs to notice that while European equity markets saw decent gains on Wednesday (exceeding 1% in the case of Germany, Italy or Spain), the UK FTSE 100 lagged behind and gained almost 0.4%.

After breaking below the orange trend line several weeks ago, the EURGBP has been unable to back above this level. Moreover, the pair has failed to break above 0.8650 several times, hence it may still drive toward 0.83 or so. Source: xStation5

US-China trade talks

Market sentiment improved markedly yesterday after some revelations related to the US-China trade talks hit the wires. Today we are a continuation of this thread with a Bloomberg report suggesting that Beijing may be granted several years (until 2025) to meet commitments on commodity purchases and allow American companies to wholly own enterprises in the Asian nation. The article also said that the goal of the ongoing trade negotiations in Washington over the next few days is to strike an agreement on the major sticking points in order to let both presidents sign a deal. Meanwhile, Donald Trump is expected to meet China’s Vice Premier Liu He on Thursday. While yesterday's revelations lifted equity prices notably, investors were more sceptic today with only minor gains seen in the Japanese NIKKEI (JAP225) or the Shanghai Composite. Risk-on is not seen in the FX market too with moves only narrowly breaching 0.1%.

Meanwhile, the NASDAQ (US100) keeps on climbing after bouncing off its 50-week MA. The tech index is getting closer to its all-time highs reached in September last year. Source: xStation5

In the other news:

  • Fed’s Kashkari said the US economy is not overheating, hence the Fed should not react to “noisy” data by cutting interest rates now

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