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House Of Commons Set To Vote On Deadline Extension Today

Market movers today

After the UK parliament in yesterday’s vote also rejected leaving the EU without a deal, the third and final vote today will show whether the House of Commons can instead converge to agree on asking for an extension of Art. 50. Even if the vote eventually passes, the question remains whether the EU27 leaders will grant an extension and whether it will be a short or long one. According to people familiar with the PM, May said that she will be looking for a two-month extension. Initial comments from the EU’s chief negotiator, Barnier, does not seem promising in postponing Brexit.

In the US, we get January new home sales numbers and we will continue to keep an eye on the housing market, since it has begun to show weakness. Higher mortgage rates are probably the driver of this weakening.

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In Europe, it is relatively quiet on the data front with final February inflation figures from Germany and France.

In Sweden, unemployment data for February is released and in light of the weakening economy we are expecting the labour market to deteriorate, albeit very slowly.

Selected market news

As expected, the House of Commons rejected a no deal Brexit yesterday. Still, it was quite interesting that a small majority (312 vs 308) voted in favour of a very clear rejection of a no deal Brexit (stronger than what May had put forward). This supports our long-held view that a small majority in the House of Commons will go a long way to avoid a no deal Brexit. We expect the House of Commons to vote in favour of an extension of the Article 50 deadline today but the most important question is whether the EU27 will try to leverage on May’s new defeat by demanding a long extension instead of just a short one, which has been our base case so far. We need to follow the response closely ahead of next week’s EU summit. Also, it increases the pressure on the Brexiteers, as it is a warning shot that the alternative to May’s deal is not a harder/cleaner Brexit but a softer one or perhaps even a reversal.

The reaction in the Asian equity markets to the no-vote has been muted this morning. Focus has been more on the data from the US and China. Retail sales from China were in line with expectations while industrial production was slightly lower. Hence, we have a mixed session with some Asian markets moving slightly lower and others slightly higher.

GBP/USD moved as high as 1.335 late yesterday, but has bounced back towards 1.325 in Asian trade this morning. 10Y US Treasury yields rose modestly by 1-2bp.

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