GBP: Extend and pretend
Sterling ran higher last night as MPs voted both on amendment and motion to prevent the government from actively seeking a no-deal Brexit. Some of that positivity has been lost as markets come to terms with the knowledge that the vote changes nothing from a legal standpoint – without a deal, a revocation of Article 50 or an extension, the UK stands to leave the EU without a deal on March 29th.
Today’s votes will now focus on whether parliament will ask the government to go to the EU for an extension to Article 50. Amendments may be offered on how long that extension should be or whether an extension should be sought for the purposes of a second referendum. I think it unlikely that any amendments offered calling for another vote will pass the house; there is no consensus for a no-deal and there is no consensus for a new vote either.
We pointed out in our webinar on Monday that the three main things to watch were the actions of the European Research Group, the wider EU and the noises made around the length of any extension. All three will come into play, with the ERG now in danger of missing out on Brexit entirely without Theresa May’s deal, or a logjam in parliament that could be enough to push the Labour party into backing another vote.
Sterling is caught in the middle of all of this. An extension solves little apart from making March 29th an easier day and a vote in favour is unlikely to drive many sterling gains. Of course, a defeat of the motion would see all of the sterling positivity gained in previous sessions evaporate.
Once again the voting today will begin at 7 pm following a day of debate. So far, eight amendments have been offered and, while that could push the vote on the extension motion out as far as to 10 pm, a lot of the amendments are duplicates or poorly backed. We would, therefore, look for the vote on the extension motion to take place at or before 8 pm.
JPY: Holding still for April
The Bank of Japan is expected to hold policy rates unchanged at its meeting overnight tonight. The Summary of Opinions from the BoJ’s January meeting suggested that the members of the rate-setting board may be edging closer to a consensus on policy but that tonight’s meeting may be a little too early for that consensus to be borne out.
In the absence of any change in policy, we will have to focus on the press conference from Governor Kuroda and, most importantly, whether the tone of his comments has shifted following recent weakness in export and industrial production data.
CNH: Industrial weakness
China’s industrial production for January-February rose 5.3% – the slowest growth of industrial production for ten years. A slowing industrial landscape and the low-intensity trade war between China and the US means that further weakness cannot be immediately discounted.