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Is May’s deal beginning to win support?

By Dean Weller

Brexit developments were dealt some fresh optimism during the early morning trade yesterday. Tory member and ERG (European Research Group) Chair, Jacob Rees-Mogg, conveyed his support to the British PM Theresa May’s Brexit plan over twitter. He feels any alternative to May’s deal will be a ‘soft’ Brexit so alluded to him favoring the deal on the table. Market reaction was positive, and Sterling moved higher across the board but I’m sure we have learnt by now a new day brings new risks when it comes to this subject. The DUP, a key player in getting the deal across the line, have yet to offer their full support so still it appears incredibly unlikely MV3 will pass if put to vote.

Today we have yet another round of indicative votes to try and see if there is a path that the majority of government would likely support. Remember, the indicative Brexit votes are not legally binding and we do not know how the EU will respond, although EU leaders will probably welcome a softer stance. This, however, will likely require a longer extension to negotiate. There is still a risk an overall majority will not be clear in the evening votes and its back to the drawing board or bringing Mays deal back to the vote on Thursday or Friday.

There is a sense of extreme nervousness about US growth after the FED recently signaled a pause in the rate cycle and recent fundamentals haven’t helped. Economic data is and will be scrutinized and yesterday’s data wasn’t encouraging. Home building fell more than expected in February as construction of single-family homes dropped to near a two-year low while the consumer confidence index by the Conference Board fell unexpectedly. A senior International Monetary Fund official said on Tuesday trade tensions between the U.S. and China have caused huge amounts of economic uncertainty and could cut Asia's economic growth by 0.9 percentage point.

Today we have the trade balance release and we hear from FOMC member Esther George.

Very little to report on for the Euro during yesterday’s session but heavy selling pressure persists for the shared currency. The poor performance is highly correlated to mounting fears of a local economic downturn, exacerbated lately by disappointing German macroeconomic data. The Euro was at the mercy of external events for price action most of the day. GBP/EUR broke through 1.17, hitting a high of 1.1731, this coming off the back of some positive Brexit developments (as noted above). EUR/USD slipped to its lowest since March 12th and is still testing those lows as we open this morning.

On the central bank front, several ECB officials are due to speak at the annual ECB watchers' conference today, which definitely has the potential to move markets.

Its been a quiet session for the Aussie overnight with little to report on. RBA Assistant Governor Ellis addressed members of the Housing Industry Association. As widely expected there was little to note from the speech other than a repeat of the RBA’s much touted “wait and see” approach while also highlighting improvements in the Australian labour market. There was a move higher for GBP/AUD with the pairing breaking into 1.85 territory, it sustained the high 1.85’s at the time of writing.

The domestic calendar is set to add as little value today as it did yesterday with only RBA Assistant Governor Kent’s panel appearance set to drive momentum.

CAD/USD hasn’t experienced much action over the past 24 hours and with little on the docket to begin the week for the Loonie it’s taking direction elsewhere. Today we see the monthly release of Trade balance.

The New Zealand Dollar took a tumble overnight following the latest rate statement from the RBNZ. I mentioned in recent commentaries this had the potential to be a market mover and it didn’t disappoint. Whilst the rate was held at 1.75% it was the statement that followed that prompted the move. The country's central bank blindsided markets by saying the next move in interest rates would likely be down, abandoning its long-standing neutral stance. GBP/NZD charged towards the 1.94 handle but failed to break and against the USD a drop of 1.6% was seen, taking the pair to a 2 week low.

Next event for the Kiwi is the ANZ Business confidence due out this evening.