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EU bungles trade deal, and we’ve not got to Brexit yet

EU bungles trade deal, and we’ve not got to Brexit yet

UK CBI industrial data printed substantially weaker than expected, with headline orders falling to -17 from -5 previously. The data also revealed that Sterling weakness aided the export sector and there are still expectations of rising output for the next quarter. Yesterday Sterling fell below 1.2200 against the Dollar by late afternoon, but held above 1.1200 versus the Euro.

Theresa May stated that Parliament would debate Brexit before and after Christmas, giving some support to the Pound. Scottish First Minister Nicola Sturgeon was less than impressed with the Brexit plans discussed at the Joint Ministerial Council yesterday; she was arguing for Scottish input in negotiations. At the moment, the market considers that much of the Brexit concern is priced in, but opinions could change today.

Bank of England (BoE) Governor Mark Carney testifies to the Treasury Select Committee this afternoon. Carney has two months to decide whether to extend his tenure at the Bank or leave in 2018, in the middle of Brexit negotiations. Theresa May has previously appeared to criticise quantitative easing, and threatened the Bank’s independence. If Carney hints that the Bank’s relationship with Whitehall is deteriorating, the Pound will suffer, as the last thing an already Brexit-infatuated FX market needs right now is discord between Downing St and Threadneedle St.

Eurozone manufacturing PMI strengthened to a 30-month high for October while the services-sector data recorded a nine-month high. German PMI data rebounded strongly after notable recent weakness, beating consensus for Manufacturing and Services.

The EU-Canada trade deal, seven years in the making, has hit the headlines for encountering a snag after Belgium failed to reign in their rogue Walloons. The fact that a tiny regional Parliament can scupper an EU trade deal highlights how difficult Brexit negotiations will be.

The US PMI manufacturing index strengthened to a 12-month high of 53.2 from 51.5 previously, with the orders and output components also at 12-month highs, while inflation pressures increased.

The Fed’s Bullard maintained his call for one interest rate hike over the next two to three years while Chicago head Evans called for a very slow pace of rate increases dependent on inflation progress, but he did state that three rate hikes were appropriate between now and the end of 2017. The Dollar drifted slightly higher as expectations of a December tightening rose above 70%. Markets are not expecting a Fed rate increase next week, but the statement will be important for overall sentiment.

Data to watch: 9am German IFO Business Climate, Current Assessment, Expectations. 2pm US October Consumer Confidence, August House Price Index. 2.30pm Mark Carney Treasury Select Committee testimony. 4.30pm Mario Draghi Speech.

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