Deadline. It’s a word that’s been cropping up quite a bit over the last couple of months. Whether it be Trump’s latest threat on sanctions, coalitions, appointments etc. it’s a word that seems to have been diluted over time. The phrase ‘kicking the can down the road’ will be familiar to many of our readers, it was attributed originally to Mario Draghi and his lack of commitment to ending QE. This can kicking tactic causes uncertainty and leaves markets frustrated and open to trading in rash ways. Brexit is another matter where deadlines have come and gone, where two years on and we are still none the wiser on what Theresa May and her cabinet seek. Frustration has now spilled over into disengagement, as businesses hold back. May had promised to publish their “ambitious and precise” plan this month, two days before the Brussels summit. However after infighting among cabinet, this ‘deadline’ is expected to be further delayed.
What is the long term impacts of these missed deadlines? Well in short it’s hard to say as quite often the effects aren’t felt until well down the line. In the UK, we saw Q1 data miss to the downside, with some of this being attributed to weather, but Brexit uncertainty also played a part. One of the key findings from yesterday’s Construction PMI was that new business growth slipped backed into decline as a result from the uncertainty. There was however better news for services data this morning, with the reading of 54, its highest since February, meaning the UK GDP is estimated to grow at a quarterly rate of 0.3 to 0.4 percent in Q2. With inflation meant to see a pick up after the introduction of new taxes and higher oil prices feeding through, the BoE may have another tough decision on their hands trying to control inflation while try not unsettle or spook investors.
Over in the Eurozone where markets have relaxed a little after the Italian political crisis, threatened to turn into a financial one. We saw the Italian 2Y bond go from trading 0.3 percent at the beginning of the month to trading as high as 2.4 percent at the end of the month, this however has now settled back to trading below 0.7 percent, still double what it was before the month. The ECB has come under some scrutiny after revealing that it scaled back the proportion of Italian sovereign bonds it purchased during the political event. Later this afternoon we have Jens Weidmann, who signaled his openness in succeeding Draghi.