Will May see this through?
UK government borrowing figures showed the year-to-date deficit, for the first six months of the year, declined to £19.9bn from £30.6bn last year, a 16-year low and well below consensus forecasts. Michel Barnier, EU Chief Negotiator, stated that a Brexit deal was 90% done but that the Irish border issue could be a dealbreaker. The Bank of England’s Mark Carney steered clear of monetary policy but stated that the bank was prepared for all Brexit outcomes.
Sterling held its mark against the Dollar, but a firm Euro rallied back to 1.1325. After the European market closed, reports emerged that Theresa May had benched the “time-limited Irish backstop” proposal and the Pound spiked higher, climbing to near 1.1365 against the Euro.
Conservative Party tensions remain extremely high with fresh speculation of a leadership challenge for Theresa May, intense parliamentary manoeuvring, and a large “peoples-vote” protest in London on Saturday. The Prime Minister’s latest comment was that we are 95% done on a Brexit deal. Sterling opens this morning little-changed, above 1.3050 against the Dollar and at 1.1330 against the Euro. CFTC data recorded a substantial number of bets against the Pound meaning positive changes to Brexit sentiment could cause a rapid reversal, bringing the Pound up with it.
A resurgent US Dollar closed last week on a strong note with investors spurning the Euro and the Pound over growing uncertainty.
US Treasury Secretary Steven Mnuchin dismissed concerns that the slowdown in the Chinese economy may spill over to other emerging markets and destabilize US financial markets, according to Reuters. The Chinese economy’s year-on-year growth was 6.5% in the third quarter – the weakest growth rate since the first quarter of 2009.
Across the pond, only the Chicago Federal Reserve National Activity Index for the month of September is due later in the North American session.
Friday saw a rally in the Euro, with an EU official easing the concerns over the Italian budget, it’s plan to increase the deficit, and the impending argument between the two. Commissioner Moscovici said he wanted to reduce tensions which also provided support for the single currency.
Italian bonds, after an initial decline on Friday, rallied strongly after the comments, going above the 1.1500 level. This was compounded by reports stating that the government was considering a reduction in the deficit to 2.1% from 2.4%. Moody’s downgraded Italy’s credit rating which put the brakes on the rally late in the session.
Monday morning has seen the EURUSD rate rise slightly to the 1.1540 mark, but versus Sterling, we are still at the 1.1325 level. Today is a very quiet day for data with the only piece of due out being the monthly German Buba Report.
Data to Watch:
12:30 USD Chicago Fed National Activity Index (Sep)