Key takeaways
-
We have increased the probability of a deal to 20% based on the positive developments in recent days (see updated game tree page 3).
-
Our base case remains another extension followed by a snap election. There are still many obstacles (Rest of EU less upbeat than the Irish, very short time to negotiate ahead of the EU summit, fragile support in the UK parliament, not least after DUP said no).
-
Increasing discussions whether to call confirmatory referendum.
-
EUR/GBP will either move back to 0.90 (in case of another extension with no deal in sight) or move even lower, towards 0.86 (in case of a deal). For GBP/DKK this is roughly equivalent to 8.29 versus 8.67. See more on overleaf.
Rest of EU less upbeat than Ireland and UK
Recent days have been positive for the Brexit negotiations and hence we have increased the likelihood of a deal to 20% (from below 10% previously). The Irish PM Varadkar and UK PM Johnson have found a "p athway to a p ossible Brexit deal", which led the EU ambassadors to initiate so-called "tunnel negotiations" (i.e. detailed negotiations trying to put the political understanding down on paper). Mujtaba Rahman from MD Europe has an excellent overview of what the UK, Irish and EU system think right now and why the Irish and the UK got back to the negotiation table.
Unfortunately for us (but positive for the negotiations), both sides have held the exact content of the negotiations tight. Media report the compromise would mean the UK collects tariffs on behalf of the EU for everything moving into Northern Ireland (NI), but paying rebate to NI companies if the goods are to stay in NI (in case UK tariffs are lower than EU tariffs), hence no need for border checks in Ireland, see Daily Mail for a graphic illustration.
However, the pathway is still full with obstacles. First of all time is very limited, as a deal must be reached no later than Tuesday 15 October, if a deal is to be ratified at the EU summit on Thursday-Friday. Also, the rest of the EU system is less upbeat than the Irish and think a lot of work still has to be done (also a problem for the EU: they don't know if Johnson has sufficient support, see more overleaf). EU chief negotiator Barnier has briefed the EU ambassadors saying that negotiations have continued over the weekend (focusing on customs arrangements) but "no breakthrough yet" (among other things, the UK still wants to have a mechanism that would allow termination of the deal). According to this FT article, the progress over the weekend has been slow and the EU is sceptical, as there is "no precedent" for such a dual customs system. EU fears third country companies will get an unfair advantage moving goods into NI and therefrom into the single market by paying a lower tariff or not living up to single market rules).
This publication has been prepared by Danske Bank for information purposes only. It is not an offer or solicitation of any offer to purchase or sell any financial instrument. Whilst reasonable care has been taken to ensure that its contents are not untrue or misleading, no representation is made as to its accuracy or completeness and no liability is accepted for any loss arising from reliance on it. Danske Bank, its affiliates or staff, may perform services for, solicit business from, hold long or short positions in, or otherwise be interested in the investments (including derivatives), of any issuer mentioned herein. Danske Bank's research analysts are not permitted to invest in securities under coverage in their research sector.
This publication is not intended for private customers in the UK or any person in the US. Danske Bank A/S is regulated by the FSA for the conduct of designated investment business in the UK and is a member of the London Stock Exchange.
Copyright () Danske Bank A/S. All rights reserved. This publication is protected by copyright and may not be reproduced in whole or in part without permission.
Recommended Content
Editors’ Picks
EUR/USD drops below 1.0800 after German Retail Sales data
EUR/USD has come under fresh selling pressure and trades below 1.0800 after the data from Germany showed that Retail Sales declined by 1.9% MoM in February. Resurgent US Dollar demand is adding to the downside in the pair. US data are next in focus.
GBP/USD stays weak near 1.2600 amid market caution
GBP/USD remains defensive near 1.2600 in European trading on Thursday. The hawkish tone from Fed Governor Christopher Waller keeps the US Dollar afloat amid a cautious trading environment ahead of key US data releases and the Good Friday trading lull.
Gold price holds strength ahead of US core PCE inflation
Gold price holds onto gains near $2,200 in Thursday’s European session. The precious metal exhibits firm footing ahead of the United States core PCE Price Index data for February, which will be published on Friday.
XRP price falls to $0.60 support as Ripple ruling doesn’t help Coinbase lawsuit against SEC
XRP programmatic sales ruling by Judge Torres was completely rejected by another US Court that ruled in favor of the SEC in a lawsuit against Coinbase.
Portfolio rebalancing and reflation trades emerge into Q2
Yesterday’s price action pointed at a possible end-of-quarter portfolio rebalancing as the session saw the laggards of the quarter like Apple and Tesla gain, and the stars like Microsoft and Nvidia retreat.