Last night UK Parliament rejected to pass Boris Johnsons deal in time for Brexit on October 31st. The Commons supported the withdrawal agreement with a majority of 30 which temporarily offered support to sterling pushing the markets to 1.1650. However, by losing the vote not to support the timetable by a majority of 14 sterling dropped back into the 1.15’s and remains on the back foot with yet more uncertainly for the UK economy.
Earlier in the evening Boris Johnson had warned that he would seek a general election if MPs refused to support his deal and the EU agree to another extension until the end of January. However, Johnson has not made it clear what his intentions are if the EU were to offer a short extension in order to allow more time to scrutinise the bill in order to get it passed.
Immediately after the vote was announced Boris stated that he would pause Legislation until he had spoken with the EU to discuss their intentions. Boris had made no secret that he intends to leave the UK on the 31st October “Do or Die” however at present this is looking less likely.
Delaying the UK’s exit date from the 31st October will require an extension to article 50, article 50 once triggered allows a two year period which was initially triggered by previous PM Theresa May in March 2017, however this date has already been extended on two occasions after Theresa May failed to get a deal through Parliament. Another extension would require agreement by all 27 EU leaders, but a shorter extension could be made by ambassadors in Brussels. It is quite clear that no one wants an extension, but it is also clear that neither side want the UK to leave without a deal on 31st October. While Brexit events unravel, there is likely to be volatility in the pound.
Meanwhile the Eurozone’s major economy Germany is looking extremely fragile and may have already fallen into recession says the European Central Bank (ECB). Economic output could have decreased slightly in the third quarter this year after contracting 0.1% in the months to June. The economy is showing no signs of recovery in the manufacturing sector (Germanys main sector) and no stabilisation in the industrial sector. The German economy appears to be suffering from the trade wars between the US and China and the impact of Brexit.
Tomorrow, Germany will see Important Manufacturing PMI data released which will give us a good insight into the health of the German economy. The markets are predicting a slight increase from last month’s figures with 48.8 up from 48.5 and 42.0 up from 41.7. Any number above 50.00 is viewed as positive so even if there is an improvement the economy remains in a delicate condition. Tomorrows PMI figures will no doubt have an impact on the ECBs interest rate decision going forward however tomorrow the ECB are expected to keep interest rates on hold at 0%. Any diversion from these figures could cause volatility in the common currency.
The trade wars between China and the US have been the main topic recently when it comes to the USD however it appears that progress is being made. China and the US seem to have struck an agreement on how to proceed with a trade deal with both countries agreeing the continuing trade wars are not beneficial to anyone. According to Vice Premier Liu, both countries are now addressing each other concerns and are laying the foundations in agreeing a deal so both countries can move forward.
It is a busy week this week for US data with tomorrow seeing the release of Initial jobless claims, Market manufacturing PMI data and new home sales. Despite the recent drop in retail sales, less business spending and slowdown in Job growth the housing market keeps ticking over which is good news for US economy and the US may need housing to keep the current recovery alive.
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