Deal ditched in favour of Xmas election
Donald Tusk stated that the EU had approved a flexible Brexit extension until January 31st, which was accepted by the UK government. Although this was widely expected, the no-deal avoidance had a modestly positive Sterling impact, and global risk appetite also contributed support. CBI retail sales improved to -10 for October from -16 previously, but ultimately this was the sixth negative reading on the bounce. Following the data, Sterling posted modest gains in moving to 1.2877 on the Dollar.
The government failed to win the two-thirds majority required to trigger a general election after the Labour Party abstained. Boris Johnson stated he wouldn’t proffer the Brexit deal again in this parliament, and that he will work with the Liberal Democrats and SNP parties to change the law that would allow an election to be called with a simple majority. The legislation will need to pass before the end of the week to secure the Lib Dems and SNP’s preferred date of December 9th. The latest polls show the Conservative’s leading by 13 points but opposition alliances will make the outcome less than predictable and many political pundits think this is a risky move by the government. So after 3 years and four months all Brexit outcomes remain open: no-deal (on January 31), a deal with multi-year transition period, a second referendum, or even a canceled Brexit scenario. Three of those options should provide support to the Pound.
The Dollar started the week on a negative fashion in response to the better tone in the risk-associated complex after President Trump hinted at the probability that the ‘Phase One’ deal with China could be signed in November.
Rising optimism on the US-China trade front plus auspicious headlines from the Brexit process have weighed on the buck in the past couple of days. In the meantime, cautiousness is expected to pick up pace ahead of the FOMC meeting tomorrow, with market participants expecting another ‘insurance’ cut by the Federal Reserve (Fed) in response to persistent signs that the US economy is running out of steam somewhat.
Later in the session, the most salient release will be the Conference Board’s gauge of the Consumer Confidence, seconded by the S&P/Case-Shiller Index and Pending Home Sales, all ahead of Wednesday’s FOMC event.
Euro-zone M3 money supply growth slowed to 5.5% in the year to September from 5.7% previously and slightly below consensus forecasts while private loans growth was unchanged at 3.4% with little market impact.
The Euro is looking north, having carved a bullish push yesterday against the Dollar but further upside could be capped by expectations for a hawkish Fed rate cut and a rise in US Treasury yields. Apart from US yields, the common currency could take cues from German Bundesbank President Weidmann’s speech today and the US housing data and consumer confidence number scheduled for release later this afternoon. As of writing, the Euro is trading at the 1.1080 against the Dollar
Data to watch
15.00 USD – CB Consumer Confidence