Market Drivers April 11, 2019
EU agrees to Brexit extension
ECB trims forecasts
Nikkei 0.11% Dax -0.28%
Europe and Asia:
USD US PPI 8:30
A very uneventful session in Asia and early European trade today as news or EU extension on the Brexit deadline turned out to be a dud for the market.
EU extended the Brexit deadline another six months until October 31, 2019, but even that was not a hard deadline, but rather time for the UK to sort out its position. In their post-vote commentary, EU officials made it clear that they will be flexible with the timing as no one wants a no deal Brexit. The news provides six months of relief for UK businesses who were looking at the loaded end of a gun if the UK would have had to suddenly exit out of EU within days. But while the agreement brings much-needed respite, the market reaction was less than stellar as Brexit fatigue and lack of clear outcomes have clearly taken their toll on traders.
After all is said and done UK still faces the same three choices a hard Brexit under WTO rules, a possible 2nd referendum that could overturn Article 50 or some sort of a customs union that would leave the issue of the Irish border unresolved. Cable held steady under the 1.3100 figure but showed little sign of life. Finally, the six-month delay could prove to be positive for UK economy as it may provide a boost in spending from a more confident UK consumer, but regardless of pick up in data, the BOE is likely to remain stationary erring on the side of caution as the risks of hard Brexit remain. All of this is likely to keep a cap on cable unless some genuine political breakthrough is achieved.
Elsewhere, today calendar is very light with only US PPI data on the docket. The market anticipates little change with core prices anchored at 2.0% level and the release is unlikely to have much of an impact on trade. Still, the lack of any significant price pressures in the US economy will only add to the downward pressure on US rates with 10 year remaining below the 2.5% level today.
USDJPY has come off the highs over the past few days and yesterday tested the bids at 111.00. The pair is trading slightly above that level ahead of the New York open but remains vulnerable to the downside drafts if equities begin to drift lower. With no economic data to guide the market, it looks like risk on/off flows will be the primary driver of trade today.