Good morning,
GBP: Another day, another defeat, another chance
As has been widely expected, the government lost its second meaningful vote on its own Brexit plan. Sterling whipped up, down and all around as markets priced in and priced out the chances of the plan gaining the support of MPs on the strength of the Attorney General’s legal advice on the Northern Irish backstop.
Sterling recovered a little after the defeat as, for the first time in my eyes at least, Prime Minister Theresa May mentioned the chances of a second referendum in a neutral way; not endorsing it but certainly not criticising it.
Today is yet another political day with a vote this evening on a motion ‘That this House declines to approve another leaving the European Union without a Withdrawal Agreement and a Framework for the Future Relationship on 29th March 2019; and notes that leaving without a deal remains the default in UK and EU law unless this House and the EU ratify an agreement.’
Of course, a vote against a no deal cannot preclude us leaving without a deal – it is the legal default of the Article 50 process and can only be definitively avoided by a deal or a revocation of Article 50 itself. We think that the vote does not pass tonight but there are enough vocal members of the House of Commons to heighten sterling’s blood pressure. I would not be surprised if sterling slipped back to the 1.30 level at some point today ahead of the vote and were the vote to succeed then the falls could be calamitous.
Six amendments have been offered currently and so, while the earliest the vote could be today is 7pm, we could still be waiting at 9pm.
As it that wasn’t enough, we will also receive this year’s Spring Statement from the Chancellor today. This is not a Budget – no spending and tax changes will be announced – but what Chancellor can resist offering a flourish at the end of the speech to lighten the mood? The statement will be delivered after PMQs, so around 12.45pm.
EUR: Production could help the euro
Eurozone industrial production numbers are due this morning and, whilst this has been a drag on the European single currency and the wider Eurozone economy for the past six months or so, the situation may be changing for the positive.
That is not to say that the euro is set to rally today; the Brexit news in Westminster is a pressure on the single currency as well as the pound, although a vote against a No-Deal would provide an improvement in the wider context of political risk.
Spanish inflation numbers are also due.
USD: Investment to increase
While the back and forth of US/China trade has quietened down since the extension of the current tariff truce at the end of February, it still remains the most important economic news story globally. Nothing has changed in recent days but the US is happy to keep the pressure up on China with President Trump’s most senior trade negotiator saying that the US must keep the option of raising tariffs on Chinese imports as a way to ensure Beijing lives up to a trade agreement.
US durable goods orders are also due and may show a stabilisation of investment spending.
Have a great day.