Hard Brexit turns into Brexit-Lite, all the calories but a different brand
British manufacturing growth unexpectedly slowed last month as factories grappled with soaring costs caused by Sterling’s slump after June’s Brexit vote. OPEC’s cuts and the consequent jump in oil prices will exacerbate this. However, the Pound made gains across the board after UK Brexit secretary David Davis said that Britain may consider contributing to the EU budget in return for full access to the single market after Brexit.
The Financial Times reported that Theresa May is extremely confident that she can trigger Article 50 by March-end, even if she loses the Supreme Court appeal next week. The possibility of the UK maintaining access to the European Union’s single market re-ignited ‘Soft-Brexit hopes’ and Pound surged as high as 1.1948 against the Euro.
Weaker UK construction sector PMI data is expected, given yesterday’s lower than predicted manufacturing PMI report. Should the PMI reading surprise and be stronger than expected we could see GBPUSD extending its advances to test the two-month highs reached yesterday at 1.2696.
The decline of the Greenback has allowed EURUSD to extend its weekly advance towards 1.0700 and GBPUSD hit an intraday high near the 1.2700 region yesterday. Today’s big event for the US is the monthly NonFarm Payrolls employment report, the last monthly report for this year. With the market having already fully priced in a rate hike at the Fed’s monetary policy meeting on December 13-14, it is unclear whether Nonfarm Payrolls will cause much volatility unless there’s a significant shortfall.
The Italian’s will go to the polls on Sunday, and Matteo Renzi is preparing for the worst if his proposals are rejected by the populace. The European Central Bank (ECB) will continue its quantitative easing program (printing money) to protect investors and limit yield rises for Italian government bonds. If a “No” decision takes place, Italy may find it challenging to attract foreign investments.
French President Francois Hollande has decided to not run for re-election. Hollande has warned of the danger of extremist movements and protectionism campaigns that will cause uncertainty in the Eurozone and increase volatility for the currency. Next week’s activity includes the ECB’s interest rate decision, monetary policy statement and press conference.
Data to watch: 9.30am UK PMI Construction (Nov). 10am EUR Producer Price Index (Oct), YoY & MoM. 1.30pm NonFarm Payrolls (Nov), US Labor Force Participation Rate, Unemployment Rate, Average Hourly Earnings, Average Weekly Hours. 6pm Baker Hughes Oil Rig Count.