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GBP loses ground after no-deal Brexit rejection

07:02 14 March 2019

Summary:

  • UK Parliament rejected a possibility the country could leave the EU without any agreement
  • British currency loses ground following the vote ahead of the showdown on Thursday
  • China’s data turned out mixed for the first two months of this year

No to no-deal Brexit

During a series of Brexit votes this UK lawmakers rejected on Wednesday a possibility the country could leave the block without an agreement voting 312 against and 308 in favour of such a scenario. However, it needs to be said that the vote is not legally binding and right now the UK stays in a position to exit the European Union without a deal on March 29. On Thursday another vote will take place as lawmakers will be asked of they want to postpone the Brexit deadline until June 30 in order to allow the necessary legislation to get through the Parliament. Nevertheless, such an extension will be available only on the condition that they back the May’s deal by March 20, if they fail to do so until then, then the delay could be beyond June 30. In practice that means we are heading for another “meaningful vote” on March 20. Do note the European Council summit will take place on March 21. Thus, one may be almost certain that the UK will not leave the block by the end of March, and instead it could happen by the end of the first half of the year at the earliest. Although it is a possibility on the table currently, there are really thin odds to get this scenario materialized. On that account we reckon that the deadline extension beyond the end of June is a base scenario. The pound appreciated on Wednesday evening but it has given back these gains since then. The British currency is by far the worst performing one among the G10 block this morning losing more than 0.6% against the US dollar. On the flip side, one needs to notice that the greenback is strengthening against its all major peers in early European trading on Thursday.

The pound has appreciated against the common currency the most since May 2017. Technically the cross could be in a position to continue moving lower given a high degree of undervaluation of the pound. Source: xStation5

China’s data mixed

Looking beyond Brexit we got a bunch of macroeconomic releases from the China’s economy for the first the months. Keep in mind the NBS combines two months each year to remove any distortions caused by the Lunar New Year holiday.

A bag of data from China was mixed as some warning signals could be noticed. Source: Bloomberg

On that basis industrial production grew 5.3% YoY falling short of the median estimate of a 5.6% YoY increase and producing the weakest start of a year since 2009. Retail sales rose 8.2% YoY and matched expectations while investments in fixed assets increased 6.1% YoY - in line with forecasts but up from 5.9% YoY registered previously. The NBS also reported that real-estate investments jumped 11.6% YoY, the highest since 2014. However, it needs to be noticed that a surge in real-estate investments was due to previous land sales as well as the acceleration in construction activity. Nonetheless, both these figures declines during the first two months of the year boding not well for investments in fixed assets. Along with the industry-related data we also were offered the unemployment rate release showing a rise to 5.3% in February, up from 4.9% in December. It is the highest level in two years. Taking into account importance of the stable labour market in the eyes of the ruling party, one may suspect that further stimulus measures could be deployed in the foreseeable future if they judge that the current measures might be insufficient to keep the jobs market chugging along. Let us recall that the government has recently announced an array of fiscal measures, including tax cuts and reducing red tape, aimed at reviving stuttering economic growth.

Investors in China do not seem to like the data as the Shanghai Composite is trading 1.7% lower just before the close. Note that this week could be critical from a technical standpoint. If bulls fail to come back above the bearish last week’s candlestick, it could encourage bears to pile up their shorts. Surce: xStation5

In the other news:

  • Japan’s government considers a downgrade to its assessment of the economy, according to Nikkei

  • Ex-National Economic Council head Gary Cohn said that “the US is desperate to sign a trade deal with China”

This content has been created by X-Trade Brokers Dom Maklerski S.A. This service is provided by X-Trade Brokers Dom Maklerski S.A. (X-Trade Brokers Brokerage House joint-stock company), with its registered office in Warsaw, at Ogrodowa 58, 00-876 Warsaw, Poland, entered in the register of entrepreneurs of the National Court Register (Krajowy Rejestr Sądowy) conducted by District Court for the Capital City of Warsaw, XII Commercial Division of the National Court Register under KRS number 0000217580, REGON number 015803782 and Tax Identification Number (NIP) 527-24-43-955, with the fully paid up share capital in the amount of PLN 5.869.181,75. X-Trade Brokers Dom Maklerski S.A. conducts brokerage activities on the basis of the license granted by Polish Securities and Exchange Commission on 8th November 2005 No. DDM-M-4021-57-1/2005 and is supervised by Polish Supervision Authority.

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CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 79% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 79% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

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