After UK Prime Minister Boris Johnson agreed a “great deal” with the EU last week and a was meant to have been voted on, on Saturday. The “meaningful vote” was pulled on Saturday after Parliament voted 322 to 306 to force Johnson to seek an extension in case there is no agreement with the EU by the 31st October.
Johnson was forced by Parliament to ask the EU for a 3 month Brexit delay, which he did so but without signing the letter. At the same time, he sent another letter to the EU stating that he did not believe in an extension, instead asking them to reject his request for an extension which he did sign.
EU Council President Donald Tusk, said talks with EU leaders would decide how to react next, however a unanimous vote is needed to grant an extension. Today, Johnson will attempt once again to bring to Parliament a “meaningful vote” on the Brexit deal secured with the EU last week.
Michael Gove yesterday announced that Operation Yellowhammer contingency plan had begun which would see pressure mount on Members of Parliament to back Johnson’s deal should the EU refuse an extension. “The risk of leaving without a deal has actually increased because we cannot guarantee that the European council will grant an extension,” Gove told Sky News. “It means that we are triggering Operation Yellowhammer. It means that we are preparing to ensure that if no extension is granted – and we cannot guarantee that an extension will be granted – that we have done everything possible in order to prepare to leave without a deal.”
With 10 days to go until the 31st October deadline, anything could still happen.
Other than the current Brexit negotiations, the next main event for the Eurozone is the European Central Bank meeting this Thursday. This is the last meeting by the current President of the European Central Bank, Mario Draghi before Christine Lagarde takes the helm.
The European Central Bank (ECB) is widely expected to keep interest rates on hold, and the market will be paying close attention to the Monetary Policy statement indicating their decision on asset purchases and the condition of the EU economy.
“We do not think the ECB will ease policy further at this upcoming meeting but do think another 10-basis points rate cut is coming in December,” says US bank Wells Fargo. “Past that, we are sceptical the ECB will do much more, as its policy capacity with typical monetary policy tools, like rate cuts and QE (Quantitative Easing), are clearly running low. At present, the Eurozone is running a consolidated budget deficit of about 1%, with some countries, such as Germany, in surplus. It looks increasingly likely that any meaningful positive policy shock will need to come from the fiscal side of the equation.”
German Manufacturing Purchasing Managers Index (PMI) for October is also released on Thursday and is forecast slightly higher at 51.7 versus a previous reading of 51.4. Any figure above 50 shows an expansion in this sector, and as the powerhouse in the Eurozone, any stronger data sets released by Germany could in turn help strengthen the value of the euro.
The market focus last Friday was towards the next Federal Reserve interest rate decision at the end of this month. US factories are struggling amidst the ongoing trade war with China and economists are worried that the manufacturing sector slowdown could impact the rest of the US economy, leading to lower growth. This may in turn put pressure on the Federal Reserve to cut interest rates again in an attempt to stimulate the US economy. This will also appease Trump, as has made it very clear on several occasions that he wants US interest rates lower to support the US economy.
On another note, President Donald Trump has been highlighted in the news but not necessary for the right reasons. Trump had arranged for next year’s G7 economic summit of world powers to be held at Trump National in Doral, Florida. However, after facing backlash, Trump tweeted "We will no longer consider Trump National Doral, Miami, as the Host Site for the G-7 in 2020. We will begin the search for another site, including the possibility of Camp David, immediately."
Recent stronger jobs data in Australia, with a fall in the unemployment rate has helped the Australian dollar gain value. This may reduce the pressure by the Royal Bank of Australia to have to look at further interest rate cuts until later in the year. The Royal Bank of Australia has already cut interest rates 3 times this year in an attempt to stimulate growth in the Australian economy.
At the International Monetary Fund in Washington, Governor Philip Lowe said that it was “extraordinarily unlikely” that interest rates would need to be cut into negative territory to stimulate the economy.
Meanwhile, Australia will continue to look out for any further developments surrounding the US-China trade talks. The Australian economy has been affected by US-China trade war, so any positive news surrounding this could help the Australian economy and value of the Australian dollar.
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