Awaiting Another Key Vote on Brexit

March 13, 2019

Yesterday’s British parliamentary vote on Prime Minister May’s revamped Brexit deal saw around 40 MPs flip from having voted no in January to now accepting the arrangement. The deal was nonetheless easily rejected by 391 nays to 242 yes votes. Today’s key vote asks MPs for approval for the U.K. to leave the EU after March 29th even if there’s no deal in place. Should this vote also fail, there will be yet another tomorrow on whether to extend negotiations beyond the March 29th deal and perhaps whether to replace the prime minister.

Sterling has rebounded 0.6% today. The Ftse has edged up 0.1%, and the 10-year British gilt yield is 3 basis points firmer.

In other market action,

  • The dollar shows no overnight net change against the yen, yuan, or loonie. The greenback has strengthened 0.3% against the Australian and New Zealand dollars but lost 0.2% relative to the Swiss franc and Mexican peso, and 0.1% vis-a-vis the euro.
  • The price of Comex gold strengthened 0.8% and moved back above $1300 per troy ounce. West Texas Intermediate crude oil likewise climbed 0.9%.
  • The 10-year U.S. Treasury yield and most continental European 10-year sovereign debt yields firmed. In Japan where weak data were reported, the 10-year JGB yield slid another basis point to minus 0.6%.
  • Share prices in the Pacific Rim fell by 1.1% in China, 1.0% in Japan, 0.5% in Hong Kong and Singapore, 0.6% in India, 0.4% in South Korea and Indonesia, 0.3% in New Zealand, and 0.2% in Australia.
  • European share prices are little changed.

Core private domestic machinery orders in Japan dropped 5.4% in January, which was almost four times greater than market expectations. Such were also 2.9% lower than a year earlier. Public sector orders for Japanese machinery did a dead cat 2.7% bounce after plunging 23.2% in November and a further 11.3% in December, while export orders posted a second straight monthly dive of 18.1% and were 22.7% below their January 2018 level.

Domestic producer price inflation in Japan edged up 0.2 percentage points to 0.8% in February but remained well down from 3.0% as recently as October. Compared to February 2018, import and export prices sank 0.7% and 1.7%.

Japan’s monthly tertiary index, a gauge of service sector activity, rose 0.4% in January (1.1% on year) following drops of 0.3% in November and 0.5% in December.

Industrial production in the euro area had recorded back-to-back 1.5% and 0.9% declines in the final two months of 2018 but opened 2019 with a 1.4% increase, thanks to rises of 2.4% in energy and 0.9% in capital goods. January’s level of overall industrial production was still 1.1% less than a year earlier and 0.35% below the fourth-quarter average.

Spanish CPI inflation printed at 1.1% in February, in between January’s 1.0% and December’s 1.2% but well down from 2.3% as recently as October.

Italian unemployment ticked up 0.1 percentage point to 10.5% in January.

The Westpac gauge of Australian consumer confidence continues to see-saw, slumping 4.8% in March following a rise of 4.3% in February and a drop of 4.6% in January.

New Zealand food prices, which had recovered 1.0% in January, rose by a further 0.4% in February.

Scheduled U.S. data releases later today include producer prices, durable goods orders, and construction spending. Investors yesterday learned that U.S. CPI inflation of 1.5% — a 29-month low — had undershot expectations. Fed Chairman Powell has said that an actual rise of inflation will be a necessary condition before another interest rate hike is considered, and he has expressed tolerance for inflation going above the 2.0% target so long as the overshoot isn’t believed to a prolonged event.

Copyright 2019, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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