Hard Brexit off the table?
Theresa May stated yesterday that the government is trying to avoid a sudden ‘cliff edge’ change in rules once the UK leaves the EU, and would aim for a transitional deal in the interim. The comments curbed expectations that there would be a ‘hard’ Brexit with optimism surrounding transitional arrangements. Sterling advanced to highs just above 1.2500 against the Dollar where there was further significant resistance, while the Euro retreated to two-month lows below the 1.1764 level.
President-elect Donald Trump is searching for the next Treasury Secretary, having met with Wall Street veterans over the weekend. Trump’s willingness to appoint Washington outsiders mean that Billionaire investor Wilbur Ross, Global Head of Real Estate at Blackstone Group Jon Gray, and President of the hedge fund Bridgewater Associates David McCormick are in the running for the US Treasury.
Inflationary pressures have decreased as US economic activity strengthens, indicated by the the Chicago Fed National Activity index printing better than previous highs. Trump has said his future relationship with China is “too big to fail”, as two of the world’s largest economies begin to collaborate.
Against the Euro, the Dollar saw highs around the 1.0582 mark but as risk appetite loosened the pair fell back to the 1.0649 region. Political developments will continue to be the driver of financial markets in the coming weeks, but as the US quietens down for Thanksgiving (this Thursday) the focus will move to Europe.
The Euro is suffering from concerns surrounding the Italian political outlook and the banking crisis facing Italy’s lenders. The Bundesbank is optimistic on German economic growth with expectations of a stronger fourth quarter performance after subdued growth in the third quarter. European Central Bank (ECB) President Mario Draghi stated that the Eurozone economy was expanding at a moderate pace which was in line with recent commentary by the central bank. Draghi also reiterated that a substantial amount of monetary stimulus will be needed to meet inflation targets; negative rates have not dissuaded individuals from saving.
Data to watch: 9.30am UK Public Sector Net Borrowing (Oct).