March 14, 2019 / 8:30 AM / 6 days ago

Daily Briefing: 'MV3' - Defeated May eyes a third go on Brexit

LONDON (Reuters) - Yet another humiliation last night for Theresa May's government - but astoundingly it looks as if her Brexit deal will live to see another day with "MV3" - a third so-called meaningful vote - now expected to take place sometime before next week's EU summit.

Full Coverage: The Road to Brexit

What happened last night was a total collapse of cabinet discipline as top ministers refused to support May’s demand that “no-deal” remain on the table; while not legally binding, the ensuing vote made it clear that a solid majority of parliament wants to rule out a no-deal Brexit under any circumstances.

"This is very dangerous territory we are going into with regard to our democracy"

May is now forced to change tack: whereas once she threatened with “my deal or no deal”, she will now tell hard Brexiters that her deal is the only way to avoid a very long delay to Brexit that could mean no Brexit at all.

Anti-Brexit supporters celebrate voting results outside parliament, March 13, 2019

Such an approach will infuriate them - one of them already described it as “scorched earth” policy - but it could work. Much now depends on whether lawmakers can in coming days mount a cross-party effort to secure a softer Brexit, even something which keeps Britain in the EU single market.

For now, it looks as though parliament will later today vote to ask the EU for a short delay to Brexit; votes on other options could also be scheduled.

Other things to watch out for in European politics today: NATO releases its annual report in the midst of persistent tensions between Donald Trump and European allies over defence spending; the European Parliament will meanwhile vote on whether the European Union should start trade talks with Washington; and the Bank of France is expected to issue a small downgrade to the country’s economic growth prospects.

MARKETS AT 0755 GMT

After a night of drama in Westminster, sterling has given back some of Wednesday’s surge as traders eye the next series of UK parliamentary hurdles in the tortuous Brexit process even after a win for lawmakers seeking to prevent a crash out of the European Union without a deal.

Amid confusion over amendments to the government’s vote last night, parliament eventually voted narrowly against a ‘no deal’ Brexit at any stage – not just March 29 as the original motion suggested.

The pound surged to a nine-month high of $1.3383 and a near two-year high against the euro as investors' "worst case" scenario appeared even less likely, if not completely off the table in the event the EU does not agree to a probable request to delay Brexit. Goldman Sachs said the latest developments meant their assigned probability of a ‘no deal’ exit had fallen to 5 percent from 10 percent previously.

But the pound slipped back below $1.33 first thing Thursday ahead of another parliamentary vote on a “time limited” extension of the Brexit process and as UK Prime Minister Theresa May indicated she could put her existing agreement to a third “meaningful vote” next week before a formal extension request at next Thursday’s EU summit.

The threat of a lengthy extension is seen by many analysts as a way to bring dissident members of May’s own ruling Conservative party back into line in favour of her deal. But a defeat today for the vote on an extension request would add further confusion to the process.

While Brexit optimism buoyed all world markets on Wednesday, a mixed set of Chinese economic numbers first thing today and indications from U.S. President Trump overnight that he’s in no rush to seal a trade deal with Beijing dampened sentiment on Thursday. Shanghai stocks fell more than 1 percent, with Asia’s other major bourses little changed. U.S. and European stock futures were flat also.

China’s offshore yuan rate weakened slightly after news that the country’s industrial output growth fell to a 17-year low in the January-February period even as retail sales came in better than forecast.

The dollar’s DXY index firmed after Wednesday’s sharp retreat, breaking a four-day losing streak for now at least. Euro/dollar was firm above $1.13. MSCI’s emerging market currency and equity indices were lower. the Turkish lira matched those losses with fresh data showing Turkey’s January industrial production tumbling 7.3 percent. Ten-year U.S. Treasury yields were higher.

-- A look at the day ahead from European Economics and Politics Editor Mark John and EMEA markets editor Mike Dolan. The views expressed are their own —

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