After weeks of political procrastination since the deadline extension to Article 50, finally something substantial to go on for Brexit. Beleaguered Prime Minister May will try for a fourth and final time to get her Withdrawal Agreement Bill (WAB) through Parliament. Nothing much has changed from the other three times, aside from the odd tweak here and there on a customs union in the political declaration (which is not legally binding). However the big difference is with the potential add-ons. Mrs May has promised a vote in Parliament on whether to have a second referendum attached to her deal. In a massively divided House of Commons, this is an incendiary decision. But wait, will this all be happening at all? In an attempt to finally drag this over the line, Mrs May could bring about her downfall even sooner and risk total failure. Backbench Conservative MPs will meet to decide on whether to change the rules on a leadership challenge. This could be quick and trigger a change of Prime Minister that would kill off the fourth vote on the WAB. This is the crucial element that could lead to sharper sterling weakness, amidst the prospect of a new euro-sceptic Conservative Prime Minister. Traction could be swift suddenly and the next few days crucial for Brexit. Markets do not know what to make of all this. Sterling spiked over 100 pips up only to quickly unwind the move in a volatile session. Weighing up the Brexit permutations is as difficult a task as ever today. However, the wild ride on Brexit may have been cranked up once more.
Wall Street rallied last night with the S&P 500 +0.8% at 2864 but ongoing conflicting newsflow on the trade dispute mean traders are unsure. US futures have unwound back by around +0.3% this morning. This uncertainty is leading to mixed moves on Asian markets with the Nikkei +0.1% and Shanghai Composite -0.6%. In forex, the trend of USD strength is edging higher once more, but with a mild negative bias which is helping JPY to outperform. In commodities, a stronger dollar is again a drag on gold, whilst oil is pressured following the surprise build in the API inventories.
The big focus on the economic calendar for the European morning comes with UK inflation for April at 0930BST. Consensus expects UK headline CPI to increase to +2.2% (from +1.9% in March), with UK core CPI expected to tick higher to +1.9% (from +1.8% in March). The EIA oil inventories at 1530BST are expected to show crude stocks in drawdown by -2.5m barrels (+5.4m last week) with distillates drawing down by -0.3m barrels (-1.1m last week) and gasoline stocks in drawdown by -1.5m barrels (-1.1m last week). The FOMC minutes for the May meeting are at 1900BST and the focus will be on how the committee as a whole viewed the recent deterioration in inflation.
The Fed speakers this week keep rolling in. Today we have the FOMC’s John Williams (voter, leans hawkish) at 1500BST.
Chart of the Day – EUR/AUD
The uptrend channel of the past four weeks continues to pull the market higher. Monday