EU signals long extension to Brexit deadline

Summary:

• Pound little changed after John Bercow ruled the same May’s deal cannot be voted again during the same session
• EU is likely to agree to extend the Brexit deadline by three or even nine months
• RBA’s minutes do not point to a change in rates in the foreseeable future

Brexit drama continues

The British pound remains little changed on Monday after the Commons Speaker, John Bercow, ruled that the same May’s deal cannot be voted again during the same session. In practice, this means any vote this week is extremely unlikely to take place. Moreover, Prime Minister will be allowed to submit such a request to vote her Brexit agreement again only if she is able to introduce substantial changes. Bercow’s ruling has complicated a Brexit drama a bit, however, the EU’s leaders are still expected to agree to a 3-9 month extension to the Article 50. Keep in mind that the option with a 9-month extension would require the UK to hold European elections in May. The key question is what is a “substantial change” that could convince Bercow to allow to vote the May’s deal yet again. The possible scenario includes that the EU will agree to extend the deadline by 9 months on Thursday, during the European Council summit, as such a move could be considered as a “substantial change” removing the legal roadblock and allowing to vote the May’s Brexit accord (it would be a third “meaningful vote”, the previous ones were rejected by 230 and 149 votes). Needless to say, the 9-month Brexit deadline extension could not persuade Bercow, albeit the EU is likely to wait until the very last moment giving Theresa May more time to persuade him and get her deal passed through the Parliament. What will happen if May fails to convince Bercow? Not too much to be honest as the EU is reportedly likely to signal that the 9-month extension option is still on the table. The pound is little changed this morning and from a technical viewpoint the currency looks to be in a position to continue strengthening against the euro.

The EURGBP managed to stay below the supply area last week, a technical signal that bears may keep control here for longer. Another important zone to watch is placed in the vicinity of 0.8310. Source: xStation5

RBA’s minutes

The minutes released overnight offered no new information we had not already known about Australian monetary policy. The bank stressed significant uncertainties on the economic outlook presenting scenarios where might be appropriate to eventually raise or cut rates. The board agreed there was no strong case for a near-term move in rates. The bank signalled that it awaited more information to resolve a tension between the solid jobs market and soft GDP growth. Finally, the Reserve Bank of Australia admitted that a slowdown in home loans was due to softer demand as well as tighter credit conditions. Although the bank seems to present a balanced outlook for either a rate cut or a hike, the market-implied likelihood suggests 78% chance to see a rate cut by the year-end. Apart from the RBA’s minutes we also got the house price data. The index being prepared by the Australian Bureau of Statistics fell 2.4% QoQ in the last three months of the past year, a miss compared to a 2% QoQ decline expected.

Meanwhile the AUDUSD is approaching the bearish trend line after bouncing off the important demand area. Source: xStation5

In the other news:

• New Zealand’s consumer confidence decreased to 103.8 from 109.1 in the first quarter

• Japan’s economy minister Motegi hopes the BoJ keeps doing its utmost towards achieving the inflation aim

• Chinese equities move slightly lower this morning, SP500 futures point to a flat opening