Cliff-edge Brexit postponed
|Market movers today
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After the EU27's decision to grant a very short unconditional extension of Brexit (see more below), we will follow closely the response from leading UK politicians today and over the weekend ahead of next week's decisions in the House of Commons.
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In the US, we get Markit PMIs (preliminary) for March, which will be particularly interesting on the back of this week's Fed meeting, where the central bank signalled concern about the momentum in the US economy. We still think Markit manufacturing PMI will stabilise, so we expect the manufacturing index to come in at 54, up from 53.
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We also get euro area March flash PMIs, where we expect some stabilisation in the manufacturing index, which we see arriving at 49.1, while we see services PMI continuing to rebound to 53.1 due to solid domestic demand. Today also brings German PMI; improving activity in Germany's industry will be an important ingredient for the euro area growth rebound we still expect to take shape in Q2.
Selected market news
The EU Council decided to offer the UK a very short unconditional extension of the Brexit deadline of two weeks to 12 April, with a possible extension to 22 May if the House of Commons passes the Withdrawal Agreement before that. If the House of Commons rejects the deal again, the UK will either leave without a deal on 12 April or alternatively indicate a way forward for the EU Council to consider (i.e., among other things, accept participating in the European Elections in May). PM Theresa May accepted the terms. Basically, the EU leaders' agreement means that the UK has one more time to pass the deal but keeping the option of a long extension on the table. At the moment, a long extension seems more likely than the deal passing, as during the many votes in the House of Commons we saw a majority wanting to take a no deal Brexit off the table while May has still not found a majority for her deal as of now. That said, we have to watch the response from UK politicians in the coming days to see whether there will be a change of positions in British politics.
After the announcement, the GBP reversed earlier losses in Asian trading. US equity index futures, Treasuries and the USD were mostly steady, while 10Y Japanese bond yields fell to their lowest levels since November 2016 after disappointing inflation numbers.
While the Bank of England remained on hold amid mixed UK figures and growing Brexit uncertainties, yesterday Norges Bank (NB) hiked policy rates by 25bp as widely expected, but still delivered a hawkish surprise to the market by adjusting the rate path upwards. As Norges Bank supports our view on the relative performance of the Norwegian economy, we now expect NB to hike rates again in June, and deliver another rate hike in December (previous call was one 2019 hike in September). EUR/NOK continues to test the 9.60 support level and we think the carry-momentum argument has been significantly strengthened, with June becoming a live meeting, see Norges Bank Review .
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