Jo Johnson: the 14th casualty of Brexit
UK Q3 GDP data printed a 0.6% increase and the year-on-year increase was 1.5%, both, meeting consensus forecasts. Construction data printed above expectations, but investment declined. The UK trade deficit narrowed to a seven-month low but the underlying opposition to the UK government’s Brexit plan meant the Pound was unable to capitalise.
Late in the day, junior Minister Jo Johnson resigned and called for a second referendum on any deal. With the Ulster Unionists also expressing major concerns, Sterling fell below 1.3000 against the Dollar. CFTC data registered a small increase in net short positions (bets against the Pound), maintaining the risk of a sharp reversal if there is a Brexit breakthrough. Conservative Party divisions and uncertainty meant tensions remained very high, and reports that a Monday Cabinet meeting had been cancelled triggered further doubts over the ability to secure a November deal. Sterling dipped below 1.2900 against a strong Dollar and the Euro pushed back to the 1.1415 area.
The absence of tier-one economic releases from the UK and a US bank holiday mean incoming Brexit headlines and any further ministerial resignations will drive Sterling Sentiment today.
US producer prices increased 0.6% in October compared with consensus forecasts of 0.2% with a 0.5% increase in the core rate also above forecasts to give a year-on-year increase of 2.6%. The preliminary University of Michigan consumer confidence index was slightly above consensus forecasts at 98.3 from 98.6 previously while one-year inflation expectations declined slightly, but longer-term expectations increased to 2.6% from 2.4%.
The Dollar continued to gain support over the weekend whilst the Euro and Pound lost traction with the EURUSD retreating to the 1.1260 area whilst GBPUSD has fallen to 1.2850.
The wide view for the strengthening in the Dollar is due to market participants continuing to factor in another rate hike by the Federal Reserve in December following last week’s Federal Open Market Committee meeting.
Italy’s Deputy Prime Minister, Luigi Di Maio, reiterated that Italy would not leave the Eurozone or overshoot the deficit targets as spending increases would boost the growth outlook. Eurozone growth outlook concerns and uncertainty whether the European Central Bank (ECB) would be able to normalise monetary policy undermined the Euro throughout Friday. A dip in sentiment towards European currencies and a stronger Dollar meant the Euro retreated to the 1.1320 area. CFTC data revealed short Euro positions (bets against the Euro) rose to the highest level since March 2017 and long Dollar positions (bets for the Dollar) increased to the highest level since January 2016.
European confidence remains weak this morning and with on-going Brexit concerns, the Dollar gained from stop-loss Euro selling after a drop below the key 1.1300 support level.
Data to Watch:
19:30 USD FOMC Member Daly speech