Good morning,
GBP: Political sideshow offering little support to sterling
MPs today will begin their five days of debates before next Tuesday’s meaningful vote on the government’s Brexit deal. Following some late night intrigue, this debate will only begin after a motion calling the government to be in contempt of parliament is itself debated. This is a sideshow in the grand scheme of things and will not alter the timeline of next week’s vote as any sanction would take weeks to come through.
Tuesday’s debate will be closed by the Brexit secretary, Stephen Barclay, tomorrow will see security and foreign affairs debated and Thursday will see the economy and international trade on the docket. There is little in these debates that is expected to change the maths however on the vote next Tuesday; as it currently stands the government is set to lose by a heavy margin.
Sterling’s reaction to the vote remains unclear although a heavy defeat offers more risk to the pound than a slim loss; if the deal looks unsalvageable then the prospect of a government pivot to a no-deal scenario – if even only for negotiation purposes – will make investors nervous.
Yesterday’s manufacturing sentiment survey rebounded from a 27 month low albeit on stronger growth courtesy of businesses stockpiling ahead of potential Brexit disruption. These are not the strongest of foundations and sterling drove lower on the session as a result.
A similar sentiment survey from the construction industry is due at 09.30.
USD: What was agreed?
The dollar’s sell-off has slowed overnight as doubts have crept in as to just what President Trump actually agreed with President Xi. Both Treasury Secretary Mnuchin and Trade Advisor Larry Kudlow were unable to meaningfully advance or confirm the details of president Trump’s tweets hailing China’s decision to cut auto tariffs and up its purchases of US goods.
China has also declined to comment.
The 90-day extension simply extends the timeframe within which to negotiate a change of terms, but the cynic in me believes that we will have exactly the same arguments as we are having now, in March.
Higher oil prices, driven by the wider positivity over the future of international trade have also helped keep the US dollar under pressure.
There is no US data today.
AUD: The Kindness of Others
The main beneficiary of the apparent truce on trade between the US and China on trade has been the AUD with NZD and the Chinese yuan also rallying on the more positive atmosphere. Of course, such gains are built on unstable ground and the combination of a reversal in trade sentiment or further falls in oil prices may be enough to erase these improvements.
Have a great day.