Energy Markets Watch: The Brexit is Coming Edition

Contributed By: Robbie Fraser, Commodity Analyst | Schneider Electric Energy & Sustainability Services

March’s Markets Watch includes the (somewhat) standard four key dates to mark on your calendar. But, unlike most monthly installments where dates, events, meetings and reports project to have approximately equal influence on global energy markets, March 29 may yet provide comparatively cataclysmic waves throughout markets. Yes, Brexit is just three weeks out – unless it isn’t. (More on this below.) In the interim, US employment data, the Fed meeting and Thai elections may create a few ripples. 

March 8: U.S. Employment Data

Like the next item on our list, U.S. employment data has made frequent appearances on the monthly market watch calendar.  For the most part, recent U.S. economic data has continued a multi-year trend of growth. However, economists are increasingly alarmed at cracks beginning to show in the global growth picture, and that means markets are on high alert for any signs of weakness. One sign could come in the form of rising unemployment rates during the next round of U.S. employment data. Of course, the data could also show even more robust figures, including some positive wage growth, which might eventually have major implications for the Federal Reserve Meeting.

March 19-20: U.S. Federal Reserve Meeting

This month’s Federal Reserve meeting makes the cut, but just barely. That’s because it seems virtually certain at this point that the March meeting will conclude with no change in interest rates. That leaves little room for surprise (and the market volatility that would follow), but that doesn’t mean energy prices won’t be paying attention. As usual, fed comments will go under the microscope where the change in even a single word from last meeting’s official statement can trigger serious moves in currency markets. That reaction then ripples into dollar-denominated energy commodities, such as coal and crude, and eventually into energy prices at large – all because somebody decided we’re seeing “moderate” instead of “mild” inflation.

So far this year, things have generally trended in one direction: from the market expecting two to three rate hikes in 2019 to none at all. On March 20th, the market will get an inside look at whether that thesis still holds.

March 24: Thai Elections

Like most emerging markets, Thailand’s energy demand has been on the rise in recent years.  More importantly, that trend is expected to continue in the years ahead, with the southeast Asian nation looking to boost renewables alongside natural gas imports to meet growing power consumption. Particularly of note, Thailand is among a short list of countries actively expanding infrastructure to import liquified natural gas (LNG), making it an increasingly important source of demand for LNG exporters, such as Australia, Qatar and the United States. In short, Thailand’s energy demand has a direct route to impact natural gas prices in countries like the U.S.

As a result, energy markets will certainly be paying attention this election day. Thailand is a constitutional monarchy and, while the country has experienced centuries of mostly stable successions, the acting government has suffered a steady cycle of contentious elections and military rule.

This month’s elections will be the first since a 2014 coup d’état, and tensions are high. Plenty of question marks remain in terms of how the country’s ~70 million citizens will react and if the same divisions that prompted the 2014 coup will again trigger internal turmoil. If they do, it could continue a long history of economic challenges caused by political instability.

The difference this time: LNG trade means those challenges are increasingly relevant to gas and power prices around the world.

March 29: Official Brexit Date (for now)

The intricacies of Brexit and its implications for energy markets require more than a few paragraphs, but here’s the overly simplified summary: Brexit is very important.  It’s very important for Brits, for the EU, for energy markets and for the global economy at large.

After “leave” achieved a narrow victory in the 2016 referendum, one date has stood above all others on the Brexit timeline:  March 29th, 2019. That’s the official deadline for Britain to formally exit the European Union. In 2016, that meant months of negotiations to finalize transition deals and minimize economic disruption so that activity like the daily trade of natural gas, electricity, carbon permits and refined fuels between Britain and the EU can carry on.

Fast forward to today, and March 29th looks more like a steep cliff that is dangerously (and increasingly) close. The sides – there are actually more than two – have failed to reach a comprehensive agreement, which risks a “hard Brexit” on March 29th. The need to avoid a hard Brexit is one of the few aspects that generates widespread agreement, but the prospect of doing so seems increasingly slim. As a result, the door has now been opened for Britain to postpone the longstanding March deadline, though a last-minute deal is still possible. Regardless, if you only circle one date on your market calendar this month – this is it.

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