Brexit - third time's a charm (Daily analysis 14.03.2019)

14.03.2019 13:29|Marcin Lipka

Problems related to the China-US trade agreement. The pound loses some of yesterday's very strong growths. Interest rates in Poland may remain unchanged until 2022. The zloty remains stable. The euro is near the 4.30 boundary.

The most important macro data (CET - Central European Time). Surveys of macro data are based on information from Bloomberg unless noted otherwise.

  • Around 6:00 p.m.: Third vote on Brexit in the UK House of Commons. This time it is about the extension of the membership of the United Kingdom in the European Union.

Will there be another attempt to vote on Prime Minister Theresa May's plan?

Slightly disturbing information appeared in the morning. According to Bloomberg, which cited three acquainted with the matter, there will be no trade agreement between China and the USA in March. The agency informs that the meeting between presidents Xi Jinping and Donald Trump will take place in April at the earliest.

This probably means that negotiations are moving slower than expected, and more fundamental issues than duties (e.g. forced technology transfer, subsidies to state-owned companies or intellectual property) may be a more difficult nut to crack for Beijing than it was believed to be. Foreign trading markets reacted negatively to these reports, and the Chinese yuan or the Australian dollar, which are sensitive to the economic situation in Asia, fell slightly.

In the case of Brexit, yesterday's events can be considered optimistic for the pound. The amendment, which was originally intended to avoid a chaotic Brexit only on March 29th, has been extended to 'indefinite'. Although Prime Minister Theresa May's government opposed such a solution (this reduces its negotiating power), thanks to the support of some Conservatives for the extended amendment ("for" or " absence" vote) it was adopted. The risk of a chaotic Brexit has now been further reduced.

Today, in turn, the market will be waiting for another vote, this time on the extension of the UK's membership in the EU, in order to work out a plan and conditions for Brexit. It is on the agenda to extend this period by three months, but it cannot be ruled out that other ideas may emerge from the debate and be put to the vote. This could be, for example, the idea of a significant extension of Britain's stay in the EU. For example, by 12 or even 21 months. It seems that Brussels would be willing to accept this solution.

For the time being, it is not ruled out that Prime Minister May will want to vote on her own agreement on Brexit for the third time (within the next few days). Twice the vote ended in a failure, so May follows the saying "third time's a charm".

Theresa May will probably once again go to key European cities for further talks about backstop modification. However, it is likely that European officials will make no major concessions. Ultimately, much will depend on whether the threat of a clear extension of Article 50 (perhaps by as much as 21 months) will be sufficient to support the May plan by Eurosceptic Tory members. At the moment, there is little chance that they will change their minds. That is why there will probably be a change of government, early elections and perhaps a strong campaign to repeat the referendum on Brexit.

An early election is theoretically bad news for the pound, but in the current situation (chaos and impasse) it may be a good solution. If the Conservatives start a campaign under the sign of a soft Brexit, they can get more votes than in 2017, especially as the Labour are internally even weaker than the Tories. This could open the way to a very mild Brexit (common market and customs union, or "Norway plus"). If the Brexit issue goes in this direction, then further increases in the pound can be expected.

Of course, there is a risk of other scenarios, such as a relatively good result of the Eurosceptics or, again, a strongly divided parliament that could even aim for a hard Brexit. Now, however, this particularly negative scenario seems less likely than a few days ago.

Unchanged interest rates till 2022

Adam Glapinski, Chairman of the Monetary Policy Council, spoke during the Banking Forum today. The approx. 40-minute speech of the NBP President generated a number of messages from both the Polish Press Agency and foreign media. It seems that the most interesting was the one concerning interest rates. "I can say that it is unlikely that it could be changed until the end of my term of office," said Prof. Glapinski, according to PAP reports. The President's term of office ends in 2022.

The market cautiously looks at such long-term assurances, but it can be seen that the bar for any change in monetary policy in the MPC hangs very high. Global signals are currently neutral for the zloty, and it is still necessary to pay about 4.30 PLN for the euro.


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This commentary is not a recommendation within the meaning of Regulation of the Minister of Finance of 19 October 2005. It has been prepared for information purposes only and should not serve as a basis for making any investment decisions. Neither the author nor the publisher can be held liable for investment decisions made on the basis of information contained in this commentary. Copying or duplicating this report without the written permission from Cinkciarz.pl Sp. z o.o is prohibited.

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