Done deal? Parliamentary hurdle looms
Friday morning saw EU sources reporting that the Brexit divorce deal with Britain was very close, providing a safety net for Sterling sentiment. Reports also emerged that the EU was preparing to offer a supercharged free-trade deal incorporating elements of trade and security. Sterling gained on its peers in anticipation of the deal conclusion nearing.
Against the Euro, Sterling pushed above 1.1265, three-month highs, and above 1.3100 against the Dollar. EU Commission President Jean-Claude Juncker stated a Brexit deal could be agreed by November and European Council President Donald Tusk was also optimistic. Further, Michel Barnier’s negotiation team gave EU ambassadors an outline of his proposal with a formal presentation on Wednesday.
CFTC data revealed a decline in bets on the Pound falling (short position), although there remains a substantial net short position across the markets, maintaining the potential for more volatility if Sterling sentiment improves further. Although a deal appears closer, UK Brexit concessions would make it even more difficult to secure parliamentary backing once it is ratified in the Commons. The Pound opens at 1.1380 against the Euro and 1.3089 against the Dollar.
The headline US employment recorded an increase in non-farm payrolls of 134,000 compared with consensus forecasts of 185,000 and well below the expectation of over 200,000 as the number of retail jobs declined. There was, however, an upward revision to the August figure to 270,000 from 201,000 previously. We saw a decline in unemployment to 3.7% from 3.9%, the lowest recorded level for 49 years as reported employment increased sharply in the household survey. Average monthly hourly earnings increased 0.3%, in line with consensus expectations, although a downward revision to August’s data held the annual increase to 2.8% from 2.9%.
San Francisco Fed President Williams stated that the economy was not seeing inflation pressures while he continued to back gradual interest rate increases. Atlanta head Bostic stated that US demand had been stronger than he expected and there was a shift as he now looked to back a further rate hike in December.
Friday was yet again about Italian politics. Domestic bonds declined again which meant the Euro struggled versus the Dollar. Italian politicians stuck to their guns over the budget deficit and rejected proposals from the EU. Deputy PM Salvini said that Juncker had ruined Europe, which demonstrates that Italy is not going to listen to the EU going forward.
EURUSD hit a low of 1.1484 off the back of this news and a mixed US jobs report. Data on Friday was minimal in Europe as most of the market’s attention was on the US. Sunday saw Di Maio drive a wedge further between Italy and the EU which spilled over into Monday’s early trading.
Virtually no data is due for Europe on Monday with only industrial production numbers out of Germany and the Sentix Investor Confidence out of Europe – neither of which are expected to cause any volatility.
Data to Watch:
06:00 GER Industrial Production n.s.a. w.d.a. (YoY) (Aug)
23:01 GBP BRC Like-For-Like Retail Sales (YoY) (Sep)