Market movers today
After the House of Commons once again rejected all Brexit versions on the table (see more below), PM Theresa May is meeting with her Cabinet today. Watch out for any statements on what’s next during the day.
Danmarks Nationalbank (DN) is set to publish March’s FX reserve numbers today. We expect no intervention as EUR/DKK did not trade as high as in December and January.
In the US, core capex numbers for February are released, which have showed some weakness in recent months. Overall, we expect investments to continue growing in 2019 but at a slower pace compared with 2017 and 2018.
Selected market news
Global growth optimism got a boost yesterday after the stronger-than-expected Chinese PMI data and a 55.3 reading for the ISM with a very strong new orders and employment index. The numbers kick-started a global risk rally that pushed global equity markets and yields higher. At the US close, 10Y US treasury yields were 10bp higher than the level at close on Friday night. PMI was also stronger in Asian countries and the UK.
However, the apparent global growth optimism is still not visible in the Euro zone. Euro area inflation figures for March disappointed yesterday by dropping to 0.8% y/y in March from 1.0% in February. Final PMI for the Euro zone also for March dropped another notch to 47.5 from 47.6 previously. In Germany, new orders dropped to 39.3. Hence, the Euro zone manufacturing sector remains in recession and the best we can say is that the PMI numbers are not getting significantly worse, but it cannot conceal that a Euro zone recovery is far away. The disappointing readings are bad news for the ECB and it underlines that ECB policy will likely be dovish for a very long time. Our expectations for next week’s ECB meeting do not point to new policy measures; however, a continued cautious tone from Draghi should be expected given yesterday’s news.
Yesterday’s second round of indicative Brexit votes showed there is still no majority for anything in the House of Commons. That said, the three options (customs union, “Common Market 2.0” and a confirmatory public vote) were rejected by smaller margins than May’s deal on Friday (but also got fewer ayes due to MPs abstaining). The Customs Union proposal was defeated by just three votes, while the confirmatory public vote got the most ayes (but still more noes). If some of the softer versions of Brexit (customs union or Common Market 2.0) make it at a later stage, PM Theresa May will find herself in a difficult position – party or country? – given the opposition to the customs union within her own party. We cannot rule out a general election if the Conservative Party implodes. With only 10 days left to Brexit, our base case remains a long extension but it may require EU leaders accepting there is no plan at the moment. The extraordinary EU summit takes place on 10 April. We think the probability of a no deal Brexit is low but not negligible.
