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UK Cabinet Meets On Options To Break The Brexit Impasse

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Fundamental analysis of Forex market

Notes/Observations

  • UK Parliament again failed to achieve a parliamentary majority to find a path forward on Brexit; UK cabinet meeting to consider options (including delaying Brexit by months or even fresh elections)

Asia:

  • RBA left its Cash Rate unchanged at 1.50% (as expected). Omitted its prior comment noting “central scenario was still for the Australian economy to grow by around 3.0% in 2019. To set policy to support sustainable growth and achieve the inflation target over time

Europe:

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  • UK Parliament rejected all 4 Brexit motions. Voted 273 in favor, 276 against on Motion ‘C’ which called for the govt to negotiate a permanent Customs Union; Voted 261 in favor, 282 against on Motion ‘D’ which called for govt to seek an enhanced Norway-style Brexit deal, known as ‘Common Market 2.0’; Voted 280 in favor, 292 against on Motion ‘E’ which called for a confirmatory referendum to approve the Brexit deal; Voted 191 in favor, 292 against on Motion ‘G’ which calls for the govt to revoke Article 50 as a last resort to prevent a ‘no deal’ Brexit (’emergency break’ motion)
  • UK Brexit Min Barclay: Default position continued to be UK to leave EU in 11 days; govt still sought a deal
  • Consensus said to be rising in UK Cabinet to reluctantly accept customs union if PM May deal is rejected during a run-off final round of indicative voting
  • PM May said to hold a cabinet meeting on Tuesday to decide what to do and whether to hold a Meaningful Vote 4 (MV4)
  • Chancellor of the Exchequer Hammond expected to tell Cabinet on Tuesday the Tories might have to consider referendum since neither party or country could afford election. Could also tell Cabinet of need for comprise and likely to involve customs union although the Chancellor is “not Enthusiastic” about it

Americas:

  • Atlanta Fed’s GDPNow model now tracking 1.7% SAAR, up from 1.5% – BOC Gov Poloz stated that the outlook continued to warrant rates below neutral rate

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

  • Indices [Stoxx600 -0.06% at 383.46, FTSE +0.48% at 7,352.29, DAX +0.02% at 11,682.35, CAC-40 +0.03% at 5,406.92, IBEX-35 -0.05% at 9,330.36, FTSE MIB -0.27% at 21,463.50, SMI -0.10% at 9,522.00, S&P 500 Futures -0.11%]
  • Market Focal Points/Key Themes: European Indices trade mixed fading from earlier highs after gains in Asia and a strong session in Wallstreet overnight and flat futures this morning. On the macro front Brexit headlines dominate as PM May’s cabinet meet again this morning after MPs voted down four alternative proposals yesterday. On the corporate front shares on UK industrial name Rolls Royce declines after reports of earlier then expected engine blade deterioration, with some 1000 blades in need for early replacement. Azelio is a notable gainer in Sweden after announcing a MoU with JD aviation, while on the earnings front, Hostelworld and Wizz Air both gain on earnings and updates, with MP Evans and Gear4Music among the decliners. In other news share of Bonmarche declines sharply as Spectre Holdings acquired 26.2M shares at 11.45p; Pantheon Resources falls over 25% following an update in relation to the testing of the Alkaid well. Looking ahead notable earners include Wallgreens Boots Alliance, Lamb Weston and Angiodynamics among others.

Equities

  • Consumer discretionary: Wizz Air [WIZZ.UK] +3.5% (trading update; load factor), Ahold Delhaize [AD.NL] -1.5% (Amazon to cut prices in Whole Foods), Lenta [LNTA.UK] +3% (stake), Bonmarche Holdings [BON.UK] -25% (stake), Hostelworld Group [HSW.UK] +4% (earnings), Workspace Group [WKP.UK] -1% (CEO to step down)
  • Energy: Azelio [AZELIO.SE] +16% (MoU with JD Aviation)
  • Financials: Swedbank [SWEDA.SE] +3% (appointment)
  • Industrials: Rolls-Royce [RR.UK] -2% (Singapore Airlines found blade deterioration in Rolls-Royce engine blades), Nordex [NDX1.DE] +2% (order), ThyssenKrupp [TKA.DE] -0.5% (press speculation on divestment), Latecoere [LAT.FR] +5% (stake), Pantheon Resources [PANR.UK] -26% (Alkaid well update)

Speakers

  • ECB’s Villeroy (France) reiterated Council view in a letter to France President Macron that monetary policy to remain accommodative for as long as necessary. ECB could be flexible on normalization timetable and calibrate tools with complete pragmatism
  • EU Brexit negotiator Barnier reiterated that existing Withdrawal Agreement was the only option if the UK sought to leave the EU in an orderly fashion; Believed that a No deal outcome was very likely now. Reiterated that any further Brexit delay would need specific reasons
  • German Chancellor Merkel: Disorderly Brexit would mean great uncertainty, hoped UK could resolve exit from EU
  • Portugal Govt said to cut 2019 GDP growth forecast from 2.2% to 1.9%
  • EU’s Juncker: Would like the Italian govt make more effort on growth
  • Australia Govt put out its 2019/20 budget which noted that the domestic economy was sound but clear and clear risks were emerging. It cut FY19/20 GDP growth forecast from 3.00% to 2.75% and cut FY20/21 GDP growth from 3.0% to 2.75%. Raised FY19/20 budget surplus from +A$2.2B to A$7.1B while maintaining FY20/21 budget surplus at A$ 11.0B – Russia Energy Min Novak stated that had reached pledged under OPEC+ agreement Output reduction of 225K bpd reached at the end of March. Russia Mar oil production at 11.30M bpd

Currencies/Fixed Income

  • GBP was initially softer in the session after the UK Parliament again failed to achieve a parliamentary majority to find a path forward on Brexit; UK cabinet currently meeting to consider options (including delaying Brexit by months or even fresh elections). GBP/USD probed the lower end of the 1.30 area over fears of a no-deal outcome but recovered to around 1.3070 as the NY morning approached.
  • EUR/USD hovering just under the 1.12 level in quiet trade. Overall the greenback holding onto recent strength as US economy appeared to be recovering from Q1 softness
  • The TRY currency (Lira) was weaker as dealers noted that the swap-rate was lower which paved the way for short-sellers to emerge against the Lira. The Lira has been hampered by recent local elections results and diplomatic disputes between the United States and Turkey

Economic Data

  • (IN) India Mar PMI Manufacturing: 52.6 v 54.3 prior (19th month of expansion and lowest since Sept 2018)
  • (CH) Swiss Mar CPI M/M: 0.5% v 0.4%e; Y/Y: 0.7% v 0.6%e; CPI Core Y/Y: 0.5% v 0.4%e
  • (CH) Swiss Mar CPI EU Harmonized M/M: 0.3% v 0.2%e; Y/Y: 0.7% v 0.6%e
  • (ES) Spain Mar Net Unemployment M/M: -34.0K v -28.0Ke
  • (CZ) Czech Q4 Final GDP (3rd reading) Q/Q: 0.8% v 0.9%e; Y/Y: 2.6% v 2.8%e
  • (UK) Mar Construction PMI: 49.7 v 49.8e (2nd straight contraction)
  • (EU) Euro Zone Feb PPI M/M: 0.1% v 0.2%e; Y/Y: 3.0% v 3.1%e

Fixed Income Issuance

  • (SK) Slovakia Debt Agency (Ardal) to sell €1.0B in 11-year notes via syndicate; guidance seen +30bps to mid-swaps
  • (ES) Spain Debt Agency (Tesoro) sold total €4.52B vs. €4.0-5.0B indicated range in 3-month and 6-month Bills
  • (ZA) South Africa sold total ZAR3.3B vs. ZAR3.3B in 2023, 2030 and 2048 bonds
  • (CH) Switzerland sold CHF519.0M in 3-month Bills; Avg Yield: -0.761% v -0.778% prior
  • (ID) Indonesia sold total IDR8.03T vs. IDR8.0T target in 6-month Islamic Bills, 2-year, 4-year, 15-year and 30-year Project-based Sukuk (PBS)

Looking Ahead

  • (BR) Brazil Feb CNI Capacity Utilization: No est v 78.3% prior
  • (RO) Romania Central Bank (NBR) Interest Rate Decision: Expected to leave Interest Rate unchanged at 2.50%
  • 05:30 (EU) ECB allotment in 7-Day Main Refinancing Tender (MRO)
  • 05:30 (HU) Hungary Debt Agency (AKK) to sell in 3-month Bills
  • 05:30 (UK) DMO to sell £3.0B in 1.00% Apr 2024 Gilts
  • 05:30 (BE) Belgium Debt Agency (BDA) to sell €1.0B in 3-month Bills; Avg Yield: % v -0.534% prior; Bid-to-cover: x v 1.69x prior (Mar 12th 2019)
  • 05:30 (UK) BOE allotment in 6-month GBP-enhanced liquidity repo operation (ILTR)
  • 06:00 (IE) Ireland Mar Unemployment Rate: No est v 5.6% prior
  • 06:30 (EU) ESM to sell 3-month bills
  • 06:45 (US) Daily Libor Fixing
  • 07:45 (US) Weekly Chain Store Sales data
  • 08:00 (BR) Brazil Feb Industrial Production M/M: +1.0%e v -0.8% prior; Y/Y: +2.3%e v -2.6% prior
  • 08:00 (CL) Chile Feb Retail Sales Y/Y: 1.5%e v 0.0% prior; Commercial Activity Y/Y: No est v 4.4% prior
  • 08:00 (UK) Baltic Bulk Index
  • 08:00 (RO) Romania Central Bank gov Isarescu to hold post rate decision press conference
  • 08:00 (RU) Russia announces upcoming OFZ Bond issuance
  • 08:30 (US) Feb Preliminary Durable Goods Orders: -1.8%e v +0.3% prior; Durables Ex-Transportation: +0.2%e v -0.2% prior; Capital Goods Orders (Non-defense/ex-aircraft): 0.1%e v 0.8% prior; Capital Goods Shipments (Non-defense/ex-aircraft): 0.0%e v 0.8% prior
  • 08:55 (US) Weekly Redbook Retail Sales data
  • 09:00 (EU) Weekly ECB Forex Reserves
  • 09:45 (US) March ISM New York: No est v 61.1 prior
  • 09:45 (UK) BOE to buy £1.15B in APF Gilt purchase operation
  • 10:00 (MX) Mexico Feb Leading Indicators M/M: No est v 0.00 prior
  • 10:30 (NZ) Fonterra Global Dairy Trade Auction: Dairy Trade price index: No est v +1.9% prior
  • 10:30 (CA) Canada to sell 3-month. 6-month and 12-month Bills
  • 11:00 (DK) Denmark Mar Foreign Reserves (DKK): No est v 455.6 prior
  • 11:00 (MX) Mexico weekly International Reserves data
  • 16:30 (US) Weekly API Oil Inventory data

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