EU27 to decide on Brexit extension
Today is the day we’ve all been waiting for, the reason why markets have been so subdued at the start of the week. An emergency EU Brexit summit, ECB meeting and Fed minutes will ensure this is anything but a boring day in the markets.
Theresa May will learn the terms of the UKs article 50 extension today, after the leaders of the other 27 countries meet to discuss her request. There are numerous ideas on the table, from May’s June 30th request to Donald Tusks one year “flextension” but it’s possible that neither will get the full backing of the EU27. Unfortunately for May, she doesn’t hold much leverage and is instead relying on the goodwill of the very peers she’s spent the last two years frustrating.
It’s very unlikely though that an offer won’t be forthcoming, it’s just a question of how politically painful it will be for the Prime Minister because with Parliament committing her to an extension and the current deadline two days away, she doesn’t have many options. Of course, Parliament could still back her deal by Friday and leave on 22 May but that doesn’t seem very likely right now.
ECB meets as IMF downgrades growth forecasts
The ECB meeting today will be an interesting affair, even if the main decisions on interest rates and TLTROs were made last month. There’s been a lot of chatter recently about what can be done to offset the side-effects of the now long-term negative deposit rate for banks and whether the ECB will act to shield them. This may be discussed today and I’m sure Draghi will take some questions on it after. Any hikes now look far away though, especially following last month’s moves.
Today’s meeting also comes as the IMF sharply cut its growth forecasts for the block and US President Trump threatens tariffs against the EU, further pressuring a region already experiencing a slowdown, with Italy in recession and Germany teetering on the edge. The risks to the downside are clearly building but I think we’ll have to wait longer for the central bank to announce any new stimulus measures, should they prove necessary.
Will the Fed go full u-turn?
The Fed minutes will also be in focus today, with the central bank having last month lowered its expectations for interest rates to only one next year and none this year. This is quite the change when you consider they raised rates for a fourth time in 12 months in December, a move that raised a few eyebrows as markets were already in meltdown and economic forecasts for 2019 were being slashed.
The minutes may not offer too much on top of what was already a comprehensive assessment a few weeks ago. Investors will be keen to see what the prospects of a rate cut are in the interim though, with markets already pricing in one this year. We’ve clearly seen a very dovish pivot from the Fed in recent months but I don’t think they’ll be ready just yet to go full u-turn. It would not reflect well on their decision in December.
