The Battle of Brexit: Deal or No Deal?
Sterling spiked last night over reports that the Irish backstop issue had been resolved and that the technical withdrawal agreement had been agreed. Sterling rose to a high on the market just shy of 1.1550 against the Euro (an eight-month high) and above 1.3030 against the Dollar. The barrage of Brexit rhetoric continued with conciliatory rhetoric from EU Commission President Juncker and hopes of a breakthrough increased following media reports that the final text had been reached.
The gains seen for the UK currency yesterday faded quickly as strong opposition to the agreement emerged rapidly within parliament. Sterling edged slightly higher this morning amidst very tense market conditions as Brexit rhetoric remains under close scrutiny with indications that major Cabinet members could support the deal. Markets believe the UK PM Theresa May’s Cabinet may approve the draft withdrawal agreement, but it will be a challenge for May to take it through parliament. This comes after both the UK and the European Union agreed on a preliminary Brexit text that would allow a deal that avoids a chaotic ‘hard Brexit’ departure.
If the cabinet agrees today, the real test will be whether the deal can survive the House of Commons, as we expect it to be accepted by EU leaders without major problems. Leading hard Brexiteers, the DUP from Northern Ireland and the Labour leadership have already given it a thumbs down, but Theresa May thinks the fear of a no-deal Brexit will make sure moderate Conservatives and Labour MPs will vote in favour. It will be a choppy morning.
Inflation data is also due on later today with further volatility inevitable amid major uncertainty as the UK October CPI figures are expected a tad firmer at 2.5% year-on-year and 0.2% month-on-month.
Yesterday saw the US Dollar lower against the G-10 currencies with Investors’ sentiment also buoyed by incoming news that China and the US will be sitting around the table to discuss trade deals. Meanwhile, WTI is slipping lower, down 1.60% following tweets from the White House residence as per usual. Oil fell for the 11th session in a row over supply concerns which in turn is affecting the Greenback. The market will also be closely watching for heavy-duty data out of China later today with fixed assets investment, retail sales, and industrial production numbers which will provide ample indication of growth or slowdown.
The Italian government indicated that it would not be changing its budget policies, again defying the EU and the IMF also warned of increased Italian vulnerability. Economy Minister Tria said that European Central Bank (ECB) member Praet stated it was too early to look for a rate tightening path. German ZEW investor confidence figures improved slightly which helped support the Euro.
Data to Watch:
07:00 EUR Gross Domestic Product (YoY) (Q3) (Germany)
07:00 EUR Gross Domestic Product (QoQ) (Q3) (Germany)
07:00 EUR Gross Domestic Product w.d.a (YoY) (Q3) (Germany)
n/a CNY FDI – Foreign Direct Investment (YTD) (YoY) (Oct)
09:30 GBP Retail Price Index (YoY) (Oct)
09:30 GBP Retail Price Index (MoM) (Oct)
09:30 GBP Consumer Price Index (YoY) (Oct)
09:30 GBP Core Consumer Price Index (YoY) (Oct)
09:30 GBP Consumer Price Index (MoM) (Oct)
10:00 EUR Gross Domestic Product s.a. (QoQ) (Q3)
10:00 EUR Gross Domestic Product s.a. (YoY) (Q3)
10:00 EUR Industrial Production s.a. (MoM) (Sep)
13:30 USD Consumer Price Index (MoM) (Oct)
13:30 USD Consumer Price Index Core s.a (Oct)
13:30 USD Consumer Price Index Ex Food & Energy (YoY) (Oct)
13:30 USD Consumer Price Index (YoY) (Oct)
13:30 USD Consumer Price Index Ex Food & Energy (MoM) (Oct)
15:00 USD Fed’s Quarles speech
23:00 USD Fed’s Powell Speech
23:50 JPY Foreign bond investment (Jan 11)
23:50 JPY Foreign investment in Japan stocks (Jan 11)