LONDON (Reuters) - The “preliminary draft withdrawal treaty” on Britain’s exit from the EU to be released by Brussels at midday will be a dry 120 pages of pure legalese.
It will also, in theory, contain nothing new. And yet it is being variously described as reality check, alarm call and even electro-shock treatment intended to express the EU’s impatience with what it sees as British prevarication on Brexit.
The text will set out the EU negotiating stance and what Brussels understands to be the state of play in talks so far. Thus, leaks suggest it will emphasise that the fall-back outcome for Northern Ireland is full alignment to the EU single market and will make the point that Britain won’t escape European Court of Justice supervision for the foreseeable future.
The former has already enraged Theresa May's DUP allies in Belfast and the latter is a red rag to hard Brexiteers in her cabinet. With the opposition Labour Party meanwhile cosying up to pro-Europe parliamentarians in her party, May's Brexit speech on Friday will need to be even more of a balancing act than usual.
On the euro zone economy, data out this morning from researcher GfK show the mood among German shoppers darkened more than expected heading into March, suggesting political concerns could be weighing on the consumer-led upswing in Europe's biggest economy. GfK said its consumer sentiment indicator slipped to 10.8 points going into March from 11.0 in February, which was the highest level since 2001.
Separately, the IMF this morning presents its annual report on the Dutch economy, which is enjoying the highest growth rates in a decade. One angle to watch is whether the IMF steps up past warnings that relatively high mortgage debts could make the economy vulnerable to swings in the housing market.
Three’s no longer the magic number. Markets read Federal Reserve chair Powell’s first semi-annual congressional testimony as hawkish and have started to price in the chance of four Fed interest rate rises this year. That take all hinged on Powell’s repeated “personal” assessment that the economy and inflation had picked up markedly since the start of the year.
When asked about four hikes in 2018, he suggested all Fed policymakers would have the chance to rethink their “dots”, plotting the future course of rates at next month’s FOMC meeting. The upshot of the question and answer session, rather than the prepared speech itself, was that futures markets moved to price a one-in-three chance of four hikes by December. U.S. Treasury yields jumped, the dollar rallied and Wall St’s main stock indexes retreated more than 1 percent each.
The effect of all three reactions across U.S. currency, debt and stock markets rippled through Asia overnight. Benchmark indices in Shanghai, HK, Tokyo and Seoul all lost more than 1 percent too. Sub-forecast Chinese business survey readings compounded the losses.
Ten-year Treasury yields have stabilised early on Wednesday, hovering just above 2.90 percent as the U.S. 2-10 year yield curve starts to flatten again to just above 60 basis points. Euro/dollar is lower, holding just above Feb 9’s low around $1.22. European stocks are marked about 0.3 percent lower, while Wall St futures are mostly flat at this stage.
European fixed income markets will be watching the release of flash February euro zone inflation later, which may take the edge off the Fed anxiety if sub-forecast German readings from Tuesday are anything to go by. Japan’s yen was up 0.3 percent at 107.08 after the Bank of Japan trimmed the amount of super-long Japanese government bonds it offered to buy at its regular debt buying operation.
Later in the day, U.S. Q4 GDP revisions will be watched closely as traders await Powell’s reprise of his testimony to the Senate banking committee on Thursday.
editing by John Stonestreet