No Deal? General Election? Possibly! Second Referendum No!

MPs had the chance again yesterday to provide their preference of four possible alternatives to Theresa May’s Brexit Withdrawal Bill but were unable to find majority support for any.

The four amendments chosen by Speaker John Bercow were; C. a customs union, D. Common Market 2.0, E. confirmatory public vote and G. Parliamentary Supremacy.

The first two options are for a “softer” Brexit but do not allow the UK unfettered authority to negotiate its own trade deals. The third is the so-called “Peoples Vote” while the final choice creates further steps to ensure the UK doesn’t leave with no deal.

Since none of these options were able to gain a majority, the Cabinet will meet again this morning to consider the next steps.

Sterling had something of a rollercoaster day. Following rumour and counter-rumour it leapt to a high of 1.3150 versus the dollar on hopes that Mrs May could seek a softer Brexit but fell back to close at 1.3105 having reached a low of 1.3009 earlier in the day.

There will be continued discussion over the next steps for Brexit but the two most feared scenarios, a General Election and a no deal departure, are still firmly on the table. As April 12th is now just ten days away and Brussels is likely to remain firm in needing firm proposals in order to agree to the extension until May 22nd this week may finally see Brexit in its final form.

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Markets calm as Central Banks hold sway

The adage that Central Banks get what they want eventually is being borne out by the market’s reaction to the Fed’s current actions which are being mirrored in several other G10 nations.

With economic data backing the Fed’s view on the economy, the dollar is remaining in a narrow range as traders await the next development. With four weeks to wait until the Feds next meeting, the data is almost universally providing the FOMC with all the encouragement it needs to remain on hold for the foreseeable future.

Yesterday, the two manufacturing indexes from ISM and Markit were contradictory with ISM a little stronger than predicted and Markit a little weaker. This led traders to accept that activity was virtually unchanged in March but still showed expansion.

With durable goods orders today and services activity tomorrow unlikely to move the market, the scene will be set for Friday’s employment report. Expectations remain unchanged with between 160k and 180k new jobs likely to have been created. There will be a sense of disappointment if there isn’t a significant upwards revision to the February headline although traders may be a little too optimistic.

Yesterday, the dollar index traded in a narrow range, closing unchanged at 97.24 having fallen to 97.03 earlier in the day.

Economic activity in the Eurozone remains weak

Yesterday’s release of economic activity confirmed the market view that the Eurozone economy continues to contract although there was one bright spark in the gloom. February’s particularly poor figure, originally given as 47.3, was revised upwards to 49.3.

This contrasts with the March figure which was back at 47.5, slightly weaker than market expectations, confirming that the region is in the grip of a slowdown that is likely to become a recession.

The single currency continues to hold onto its support at lower levels. Yesterday it traded between 1.1250 and 1.1203 as traders await some sign that the ECB has some plan to boost activity. The region-wide unemployment rate was unchanged at 7.8% although the makeup of those unemployed remains a concern with 18 to 25-year-olds making up a disproportionate percentage of the total.

The core inflation rate unexpectedly fell to its lowest level in 11 months in March. The headline was 1.4% and with volatile components stripped out it was just 0.8%. Mario Draghi insists that the rate of inflation will pick up driven by wages in Q2/3 and that this has been “delayed rather that derailed” by weaker than expected economic activity. That remains to be seen as the Central Bank is conspicuous by the absence of any constructive ability to boost activity.