More Brexit Confusion, Brighter Data, and an FOMC Meeting

March 19, 2019

The dollar stayed in neutral gear overnight, dipping 0.1% against the euro, sterling, and kiwi, holding flat relative to the yen, yuan and Swiss franc, and nudging up 0.1% vis-a-vis the Aussie dollar. Slightly bigger dollar dips occurred of 0.4% relative to the loonie and 0.2% versus the Mexican peso.

Asian stock markets likewise didn’t move much, aside from a 0.5% drop in Indonesia and a 0.7% rise in India. European share prices got a boost from better than expected British labor statistics and the monthly ZEW Institute surveys of investor attitudes toward Germany and the euro area.

Britain’s ILO-basis jobless rate eased 0.1 percentage point to 3.9% in November-January, lowest in 44 years, and on-year growth in average weekly earnings was 3.4%, near to the fourth-quarter’s almost ten-year high of 3.5%.

Citing hopes related to the possibility of a long Brexit delay and of a U.S.-Sino trade accord, the ZEW Institute in Germany reported that investors expectations improved “significantly” regarding the economic outlooks for Germany and the whole euro area. The monthly expectations index for rose to a reading in March to a one-year high of -3.6 from -13.4 in February and -24.7 last October. This improvement occurred in spite of a continuing deterioration in perceived current conditions, whose reading fell to 11.1 from 15.0 the month before and 70.1 last October. Regarding Euroland, expectations printed at minus 2.5 in March versus -16.6 in February, but the current situation had a reading of -6.6, 3.6 points weaker than in February.

Ten-year sovereign debt yields in Germany and 2 basis points in the United States and Great Britain, but remained unchanged in Japan.

In commodity markets, West Texas Intermediate crude oil and Comex gold prices climbed overnight by 0.5% and 0.6%. Oil reached a 4-month high.

Not all the news was hopeful.

House of Commons speaker John Bercow created even more Brexit confusion by denying British Prime Minister a third parliamentary vote on her Brexit agreement with the EU unless she makes significant changes to its substance. Ironically, this was good news because it increases the likelihood that the U.K. will not leave the EU soon. Markets will learn more after Thursday’s meeting of European Union leaders, who are meeting to decide whether to grant Britain a delay and for how long.

The economy of the euro area can ill-afford a hard Brexit. Construction spending in the common currency area fell 1.4% in January, its biggest monthly drop since October which resulted in a 0.7% year-on-year decline. By comparison, construction output posted on-year increases of 1.7% last quarter, 2.2% in 3Q18, 2.5% in 2Q and 2.6% in the first quarter of 2018.

Minutes from the Reserve Bank of Australia’s policy review earlier this month identify significant uncertainties, talk about two-side risk regarding the directionality of their next policy change, but argue that there is no case for changing the stance now or in the near future.

Australian consumer confidence fell 4.8% in March and was just 0.9% higher than a year earlier. Housing prices in Australia dropped 2.4% in the final quarter of 2018 and were down 5.1% compared to 4Q17.

Global disinflation was underscored by the Portuguese PPI release. PPI inflation there has fallen to 1.0% as of February from 2.7% at end-2018 and 4.8% last August.

The Swiss trade surplus rose to a 3-month high in February, resulting in a CHF 2.6 billion total for the first two months of 2019.

U.S. factory orders data will be released shortly. Today is day one of a 2-day FOMC meeting. The FOMC statement and updated forecasts will be announced tomorrow at 18:00 GMT and followed a half hour later by a press conference from Chairman Powell.

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

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