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Brexit enters extra time

By Hamish Muress

Once again as expected the House of Commons convened last night this time to vote on an extension to Article 50 in a vote that was overwhelmingly passed. As things stand though, and as mentioned earlier in the week, in law the UK is still set to leave the EU on March 29th. The next step is for Theresa May to ask the EU for an extension and the length of the offer from the EU is critical. Fortunately for the pound the outcome with this is simple; the longer the extension the higher the relief rally for sterling, the shorter it is the smaller the gains for sterling (sterling may in fact weaken somewhat due to the disappointment).

However, and very importantly it is not this simple. We often talk here about how currency markets can be fickle, but in many ways they are nothing compared to the politicians of Westminster. In the face of a long extension (Donald Tusk has already indicated he will advocate this to the EU27) many MPs may wish to now back Theresa May’s deal. This brings us nicely to next week when the House of Commons is expected to vote on May’s deal once again by March 20th although don’t be surprised if we also see a 4th meaningful vote.

The market widely ignored US data yesterday but Donald Trump did weigh into Brexit debate by criticizing Theresa May for ‘how badly’ Brexit talks have gone. The US President also said that another vote wouldn’t be possible because ‘it would be very unfair to the people that won’. To be fair the President has a point here, 17.4 million people voted to leave the EU compared to 16.1 who voted to remain. However, the irony here isn’t lost on this commentator as 65 million US citizens voted for Hilary Clinton vs. the 63 million who voted for current president Donald Trump. Go figure.

Next week the US Federal Reserve meets once again but are expected to keep the status quo being patient with any interest rate moves particularly with the mixed US data of late.

The Euro may have finally petered out in its recovery against the US dollar. Having fallen to lows below 1.12 it has rallied over the last four days or so. As mentioned its been a quiet week for the Euro but there are final euro are inflation figures for February set to be released today. Elsewhere for those interested the Finish Central Bank Governor Olli Rehn is set to speak at a conference on monetary policy – why is this interesting? Well, he is a potential candidate to succeed current ECB President Mario Draghi at the end of year.

Chinese state media reported overnight that there has been further progress made between itself and the US on its trade relations with the Chinese live premier reportedly speaking to Steven Mnuchin. The Aussie dollar was supported mildly overnight by this as well as comments from the de facto number 2 Premier Li who said that China will use all steps necessary to keep the economy growing in its current range. However, the commodity currencies currently stand on thin ice as Chinese data continues to disappoint.

It’s a similar story for the Loonie as with the Aussie dollar as it fell against its US counterpart yesterday due to the weak Chinese data seen, in particular industrial production which sunk to a 17 year low.

The New Zealand dollar tested weekly lows yesterday against the US dollar yesterday and the story is familiar – concerns around US-China relations and the effect that this is having on Chinese growth. There was also terrible news out of New Zealand which has shocked everyone as 49 people were shot at two mosques in Christchurch.