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Currency Markets Got It Wrong

I thought it was farcical when the British Pound rallied on news the UK took a hard Brexit off the table then sought a long extension.

For starters, the UK can only take Brexit off the table if they agree to something the EU would accept. Second, I never expected the EU to honor a lengthy extension in the absence of a deal.

Nine Days Away

Nine days away from Brexit, European Commission President Donald Tusk told the UK that EU to Allow Short Article 50 Extension Only if MPs Vote for Deal.

The amusing thing about the announcement is Tusk was the one campaigning for a long extension. I never bought the idea, but the currency markets did.

Theresa May to Make Statement

In the Commons, the Labour MP Ian Murray says it has been confirmed that Theresa May will make a statement to MPs at 8pm.

Tusk's Statement

Tusk rejected May's extension request. Here is the Full Statement with the key idea noted.

"In the light of the consultations that I have conducted over the past days, I believe that a short extension would be possible. But it would be conditional on a positive vote on the withdrawal agreement in the House of Commons."

In short, France torpedoed a lengthy extension as expected in this corner and as noted yesterday.

What the Announcement Means

  • MPs now face a choice between passing Theresa May’s deal next week, and a no-deal Brexit.
  • Hardline Tory Brexiters will welcome this ultimatum, because they believe a no-deal Brexit is better than Theresa May’s deal and the prospect of Brexit now being delayed until after May now seems very slim.
  • Having the end of next week as a very hard deadline now creates a dilemma for Labour MPs. They are strongly opposed to May’s deal but, unlike some Tory Brexiters in the European Research Group, they are alarmed at what a no-deal Brexit might mean for their constituents. Given that at least 20 ERG Tories are certain to carry on voting against May’s deal (and it could be many more), May will only pass her deal with Labour help.
  • The DUP will be in a quandary too. Nothing said by May or Tusk today suggests they are going to get much new in the form of backstop concessions. Like the ERG, they are philosophically comfortable with a no-deal Brexit. But the economy in Northern Ireland would suffer disproportionately in the event of a no-deal Brexit, and the DUP may be more nervous than the ERG about taking responsibility for a scenario that could put some of their constituents out of business.
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It appears Theresa May "succeeded" in binary choice play.

All along she was comfortable in winding down the clock. Curiously, so were Remainers who saw it as a chance for a referendum or long extension.

The hard-Brexit Tories were comfortable as well. As I pointed out, mathematically someone had to be wrong.

May speaks tonight. There are rumors she may resign.

Perhaps she does, but when?

Now? With a promise to do so immediately after her deal is approved?

I have no insight into this other than May's stubbornness. She may have picked up a few more votes for passage of her deal a couple of weeks ago had she done this, but hard Brexiters just might smell blood now.

Perhaps there is still a chance to opt for a softer Brexit. But that would require, as does everything else, a majority.

I just do not see Tories splintering the party to vote for the baseline Labour setup. That is why I though the Eurointelliugence position of May's deal or a custom's union would not fly.

That said, it's still possible, just very unlikely as I see it from this corner.

Odds of no-deal jumped higher again today, but it is still possible for May to scramble enough votes from Labour for her deal.

By the way, I expect a short extension, until mid-May if no-deal wins the day. That would give EU and the UK time to tie up some loose ends.

Tonight, we find out more. Importantly, it ain't over, till it's over.

Mike "Mish" Shedlock