Brexit Goes to Game of Thrones Stage

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Market Drivers March 13, 2019
More Brexit votes in UK Parliament
US PPI on deck
Nikkei -0.99% Dax -0.15%
Oil $57/bbl
Gold $1306oz.

Europe and Asia:
No data

North America:
USD PPI 8:30
USD Durable Goods Orders 8:30

After a very volatile session in yesterday’s trade with the pound putting in a 200 point range, trading was much more subdued in Asian and European trade after yet another defeat of PM May’s deal.

Despite the failure to get a Brexit deal done, cable was actually stronger in morning London dealing today with the pair running all the way to 1.3150 as traders bet that UK Parliament would reject the hard Brexit option in today’s round of voting. The consensus view is that there are enough remain Tories and Laborites to create a coalition of convenience to keep the hard core Brexiteers at bay. But given the fact that conventional wisdom has been wrong from the start on the issue of Brexit, it’s not out of the realm of possibility for markets to be jolted again. Certainly a surprise win for a no-deal resolution, while not final or fully binding would send cable reeling 3 or perhaps even 4 big figures on such a shocking turn of events.

Adding tension to the story are reports that EU-27 is sticking to hard-line about any possible extension to Article 50 expecting for UK to meet certain conditions including forcing UK MPs to decide on revoke Article 50 altogether or committing to a soft Brexit. This adds a nice Machiavellian twist to the latest developments as it forces UK to essentially consider the threat of being expelled from the customs union without any backup plans or scrap the notion of a Brexit for now altogether.

The market bias remains against a hard Brexit and if the UK Parliament reaffirms that view cable should retake the 1.3200 figure, but trade is likely to remain volatile throughout the day.

Elsewhere, the focus will be on US PPI data expected to print at 2.6% on a year over year basis. Yesterday’s weak CPI readings confirmed that US price pressures are essentially non-existent but that was viewed positively by equities and USDJPY remained above the 111.00 figure on risk on flows. If today’s data is muted as well and equities continue to rally the pair could make another run at 111.50 as the day proceeds.

Boris Schlossberg
Managing Director

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