Daily Brexit update: Kinder words; no compromises

The EU offers Theresa May a "way out", but it's a painful one


Daily Brexit update: Kinder words; no compromises

Brussels yesterday. Dublin today. The Prime Minister’s latest bout of shuttle diplomacy is covering a lot of ground to receive pretty much the same answer each time: that the legally binding Brexit deal (including the backstop) won’t be re-opened, but the political declaration could be re-worked. What is different about this end of the Brexit week is that the spirits of Europa murmuring in Theresa May’s ear are delivering a clearer message of conciliation. It is not an easy one for a Conservative Prime Minister to accept, given it’s rooted in conditions set by Labour leader Jeremy Corbyn. But perhaps it’s the “only way out”, to quote comments reportedly made by one EU diplomat. The idea requires accepting a custom union, which would at least obviate the need for an Irish backstop. Taking that way out would be akin to walking through fire, for the Prime Minister.

May has betrayed no sign of warming to the customs union idea this week and a 13th February self-imposed deadline for when she’s supposed to bring back her revised deal to Parliament for another meaningful vote is fast approaching. The date will probably be missed. If so, the condition that the House gets to debate May’s bill again will kick in. Some rejected amendments are likely to get another airing, including the Cooper-Boles one calling for Parliament to be empowered to request a Brexit delay.

But Valentine’s day may not bring sudden death for the Prime Minister’s deal. Another round of voting is possible, at the discretion of speaker John Bercow, though timing is an issue. Only one day has been allocated for debates so far. Even if votes take place, an EU that’s more willing to negotiate is expected to buy Downing Street yet more time with MP’s in the Prime Minister’s Conservative party. So, next week will either see May announce new EU concessions, automatically cancelling the debate (unlikely) or the debate will go ahead, with a probably inconclusive outcome. May’s talks with EU leaders would subsequently continue.

This convoluted outlook in itself appears to solidify probabilities of at least some sort of delay of the Article 50 ‘negotiating period’, currently set for 29th March. Another icebreaker comment, this time from May’s Irish counterpart, Leo Varadkar, stating that “a deal can be done” (again, partly predicated on a possible “extension”) came with no new concessions either. The possibility is widely discussed in Westminster and Brussels with little public acknowledgement. Yet a ‘no-deal’ remains one of the Prime Minister’s options, so delay odds are not the kind to bet the farm on. Even if next week is a more conciliatory one than this, that won’t enough to get a deal across the line by next Friday, the 6th before Brexit’s expected.

 

How this affects our Brexit Top markets:

GBP/USD: Sterling’s worst week of the year so far as optimism drains again, wasn’t exactly a disaster. The Bank of England’s acknowledgement on Thursday that Brexit certainty would negate much of its pessimistic economic outlook lifted the pound back above $1.30 for a while. Clear $1.2929 support has been consistent too, though sellers have set up shop well below a $1.3009 range top. Sharp offers were last observed at Friday’s $1.2975 high.

GBP/JPY: Also tracking a narrower range after Thursday volatility. 142.60/50s top, with an end-of-week low of 141.83

EUR/USD: A ‘mystery’ buyer was reported around $1.13, though there’s no need to resort to that explanation to observe obvious support along that approximate line over the last couple of days, the base of the rate’s 1.7% deterioration in step with softening economic signals since end-January. Indeed, EUR/USD could be set to close in the region for a fourth consecutive month, depending on Brexit developments. Friday’s high was $1.1352 followed by lows between $1.1318-$1.1322.

EUR/GBP: Sterling’s bid has migrated to the cross, dragging it down as low as 87.24 on Thursday. Indecision has since returned allowing a rise up to 87.52, but no attempt on 88.13, nearest resistance on Friday.

UK 100: A less certain start to the year’s second month for global stock markets has at least given the underperforming FTSE more company. Further Brexit inflection points join trade talks and a busier data schedule as risks, pushing buyers back to the side-lines. Housebuilders shares followed through after a solid earnings report from Barratt this week to limit the benchmark’s losses relative to European counterparts.


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