12-month flexible Brexit extension on the table

Summary:

• European Council President Donald Tusk has come up with an idea to propose the UK a 12-month “flexible” Brexit deadline extension

• Donald Trump hails the ongoing trade talks with China signalling a deal may be reached in four weeks

• Markets calm in anticipation of the US job market release

Brexit story keeps unfolding

The current official deadline for the United Kingdom to leave the European Union is set on April 12, however, it turns out that it may be pushed further in the future. According to a BBC article, the European Council President Donald Tusk has proposed to offer the UK a 12-month “flexible” Brexit extension. In practice, it would mean that the UK would leave the block in any time until April 12 next year once the Parliament backs a withdrawal agreement. Although this idea could be encouraging for the UK, the Tusk’s plan has to be agreed by EU leaders at a summit next week (April 10). Moreover, if the UK does not leave the European Union next Friday it appears that it will be required to take part in the European elections next month making the Brexit process yet more complicated. What does all that mean for the British economy and related assets? Lingering uncertainty related to Brexit is almost certain to weigh on market sentiment over the coming months therefore the British pound is unlikely to experience a long-lived rally despite its undervaluation. However, this scenario could change if the UK (in the meantime) decides to cancel out Brexit at all. Having in mind how much the whole process is complicated and how far we are from the final solution the Brexit cancellation seems to be an imaginable option. From the economic point of view further uncertainty could continue depressing investment spending being a massive drag on GDP growth in quarters to come. Let us recall that the UK has no investment last year and the slowest GDP growth rate among its G7 peers. Hence, if the UK resigns from Brexit altogether, it could be a positive news for both sides. The only thing the UK will lose in this scenario are some sunk costs as well as the months of shame.

The GBPUSD remains little changed despite a proposal of the 12-month deadline extension. The pair keeps trading within a range between 1.30 and 1.33. Source: xStation5

Trump hails talks with China

The US-China trade talks thread has been resurrected this week and today we have another bunch of information coming from Washington. Namely, US President Donald Trump said on Thursday that both sides were getting very close to a trade agreement that might be announced within four to six weeks. According to the Xinhua information agency Chinese President Xi Jingping hopes US, China trade teams can continue to make progress on each other’s concerns and the two sides have made new and substantive progress on key issues. His comments were conveyed by Chinese Vice Premier Liu He. After the meeting with Liu He Donald Trump did not announce a summit with Xi Jinping, we were told by Trump that this meeting was critical to finalizing an agreement. Earlier this week we got information that Beijing is to be granted a lot of time (until 2025) to fulfill commitments regarding commodity purchases and allowing America companies to wholly own enterprises in China. To sum up, it looks like both sides are willing to terminate the spat which has hindered trade activity all around the globe. If a binding agreement is signed and both sides choose to get rid of tariffs, it would be another upbeat news for the global economy helping it avoid a hard landing scenario.

The Dow Jones (US30) keeps rising on the back of upbeat information coming from Washington. The all-time highs seem to be in sight. Source: xStation5

In the other news:

• Australian construction PMI for March rose to 45.6 from 43.9

• Japanese labour cash earnings fell 0.8% YoY in February, and was down 1.1% YoY in real terms

• German industrial production rose 0.7% MoM vs. a 0.5% MoM expected