Brexit’s 3rd Meaningful Vote likely delayed to next week

Brexit’s 3rd Meaningful Vote likely delayed to next week; US – China trade talks may extend to June; MAS April meeting a very close call   

• Overnight Brexit developments take yet another twist with press reports claiming there would be no deal between PM May and DUP this week, pushing back the Meaningful Vote 3 (MV3) possibly to next week (Monday – Wednesday) or perhaps even later. Then, in a rather unexpected move, Speaker of the House John Bercow, warns that the government cannot bring back MV3 unless the subject matter has changed in a meaningful way. The justification for the ruling is supposedly to stop multiple votes on same issue as a “necessary rule to ensure sensible use of the House’s time”. Bercow suggests that in order to meet these requirements, EU - level negotiation would be needed rather than clarification of the legal advice provided by Attorney General Cox.  

• The much anticipated meeting between China’s President Xi and US President Trump to seal a trade agreement may now be delayed to June (from April – end), sources suggest. The  White House seems to be divided about the importance of an enforcement mechanism to ensure whether the Chinese side lives up to its side of the bargain, or should the mechanism just be enough to secure an agreement in principle and declare success.             

• Singapore’s February Non-oil domestic exports are up a sharp 16% MoM versus 4.3% expected, taking the YoY to +4.9% versus -1.6% expected. Citi analysts now see the MAS’s April meeting as a much closer call - a slightly narrower, but still positive output gap vs October forecasts and potential lowering of trade related downside risks favor further MAS tightening via a modest steepening of the 12 month slope. Against that however, is easing labor demand in response to slower growth and a possible downgrade to 2019 inflation forecasts with core CPI expected to “level off at just below 2% over the medium term” that favors the MAS standing pat in April.                               

The Week Ahead – positioning for a more dovish Fed   

• This week’s March FOMC meeting could see a lowering of the Fed dots (down from signaling two hikes to one) and likely downward revisions to projections for 2019 US growth and headline inflation, as well as further modestly dovish changes to the FOMC statement. The end of balance sheet reduction may also be announced at either this FOMC meeting or in May that likely signals an end to balance sheet reduction in July. 

GBP well supported as PM May gets more time to secure Brexit support         

• Following last night’s developments, PM May will now write to EU requesting a longer extension to Article 50 from March 29 (possibly 9 – 12 months) which will be discussed at the EU Summit this week and likely granted. In the interim however, PM May will also continue to engage the DUP and others towards getting support for her deal in a Meaningful Vote possibly early next week (Speaker of the House Bercow’s ruling therefore gives PM May more time needed to gather support for her deal).     

• Overall, the choice is still between a short or longer extension to Article 50 and while any extension would require EU agreement (and likely granted), nothing significant appears to have changed overnight – its either (1) Theresa May’s deal is passed in a MV3 next week and a short extension follows to complete legislation formalities or (2) a longer extension is granted to UK that brings into play the prospects of fresh elections and a possible 2nd referendum. Sterling is likely to find support in either scenario but with a sharper and more sustained rally more likely under scenario (1) whereas (2) may see shallower gains followed by a correction as election/ 2nd referendum uncertainties loom.  

• This week in Europe, EU leaders will discuss China, Europe's industrial policy, and US-EU relations (Wednesday and Thursday) as well as PM May’s likely request for an extension to Article 50. On the data front, Citi analysts expect German ZEW Expectations to come in at -10 (Tuesday), German manufacturing PMI at 48.0 (Friday), UK core inflation at 1.9%YY (Wednesday) and Eurozone PMI at 50.0 (Friday). On Thursday, the BoE meets and is expected to keep rates unchanged.  

CAD supported as OPEC+ mulls canceling Apr meeting  

• OPEC+ is scheduled to hold a meeting on April 17-18, but this is likely to be cancelled, according to the Saudi Energy Minister. The group is looking to roll over the current OPEC+ cuts agreement, but Russian Energy Minister Novak suggests uncertainties arising from production in Venezuela and Iran make it difficult to determine its next step before May or June. The next meeting is scheduled for June 25-26 but reports suggest a JMMC meeting is being planned for May.  

• This week in the commodity bloc sees Australian employment data on Wednesday followed by NZ Q4 GDP on Thursday. Citi analysts forecast +0.6%QoQ that is double the 0.3% pace recorded in Q3 and would produce a strong year-end result of 2.5%, accompanied by high quality growth coming from labor intensive private sectors and allowing RBNZ to retain its neutral policy stance. In Canada, this week’s 2019 Canadian Budget will be followed by January retail sales and February CPI on Friday. Retail sales ex autos could rise for the first time in five months, while CPI YoY should remain below 2%. 

Singapore exports surge; MAS April tightening a very close call  

• Citi analysts point to the MAS’s downgrade of its imported inflation assessment, coupled with a less hawkish interpretation of its communications and recent data, and with the  current policy stance probably less accommodative than in Oct 2018, suggesting less urgency for the MAS to tighten policy. But whether this is sufficient to tilt policymakers towards an April pause is less conclusive and the  policy call is now much closer than consensus and more data-dependent. Citi analysts look to February CPI (25th March) and IP (26th March) before finalizing probabilities.              

• This is an extract from the Daily Currency Update, dated March 19, 2019. Please approach a Citigold Relationship Manager if you would like more information.