As the UK enters possibly its last 24 days as a member of the EU, after 3 long years of negotiating, each remaining day will prove to be greater in importance than the previous.

Prime Minster Johnson latest Brexit proposal was met with mixed feelings last week.  It appears he has gained significant support from a majority of Tory members, the DUP party and possibly even some Labour members to give confidence that the deal could successfully be passed through parliament.  However, over in Brussels the proposal tabled was not meet with similar enthusiasm with it said not to have the ‘right basis’ of a potential deal.  French president Emmanuel Macron on Sunday told Boris Johnson that negotiations should continue swiftly with Michel Barnier’s team in the coming days in order to evaluate at the end of the week whether a deal is possible that respects the EU’s principles before the EU summit the following week.

One section reads that any parts of the Brexit deal which contradict the bill "cease to be recognised and available in domestic law, or enforced, allowed and followed".

Michel Barnier commented that he does not have a mandate from the EU 27 to agree a deal on the terms proposed. It’s evident that PM Johnson has a tough week ahead to try and agree a deal that will satisfy all parties to avoid him either pushing for a No Deal, despite clear difficulties, or to back down and request an extension which he is openly against. The PM could be forced to comprise if no alternatives are available. The continued uncertainty over which way the UK is heading with Brexit continues to keep the pound under pressure and the closer we get to the deadline without a breakthrough it could create further weakness for the pound. You may wish to stay in touch with your account manager for regular updates.

Away from Brexit key UK data out this week includes, Manufacturing Production, Industrial Production and Trade Balance on Wednesday, all forecasted to show fall in figures.

Euro gains slightly after falling to lowest levels against the USD since May 2017

The week ended quietly for the Eurozone with no key data releases out, however by the end of the week the euro had regained some value after falling to its lowest level against the USD since May 2017 and testing the 1.13s against the pound at the end of last week.

Looking ahead this week, August industrial production numbers from the ‘big 4’ economies (Germany, France, Italy and Spain) will provide the euro with an opportunity to see further gains or losses if numbers disappoint. With the Eurozone September headline CPI also weakening to 0.9%, the lowest for 3 years it could appear to be a vindication of the European Central Banks (ECB) decision last month to cut its deposit rate to -0.5% and to restart monthly net asset purchases at €20bn in November without an explicit end date. The ECB will release the minutes from its September meeting on Thursday, with a number of Governing Council members opposed either to the need for further measures or their timing further, details of the minutes will give clues to the central banks next move.

Flood of US Economic Data This Week

Mixed US jobs data

US job data in the form of Nonfarm payroll numbers was released on Friday. The data was viewed as mixed with numbers showing 136k job growth in September, just short of the expectation of 140k. Job growth has averaged 161,000 per month so far in 2019, compared with an average monthly gain of 223,000 in 2018. Unemployment rate dropped to 3.5%, down from 3.7% and beat expectation of 3.7%. This being the lowest level since 1969. The labor force participation rate held at 63.2%. Average hourly earnings rose 0.0% month on month, missing expectation of 0.3% mom.  With the data so mixed the US dollar remained steady following the releases.

On Wednesday the US Federal Reserve will share the minutes from the September meeting where they made back to back interest rate cuts. With the market looking for clues if a third cut could be forthcoming with the next decision due on the 30th October. Any early signs of a possible cut could see the US dollar weaken as the Fed continues to take action against the threat of a global slow down. Thursdays US CPI Inflation data release will also provide a key insight into the state of the US economy and may dictate the dollar’s value.

Australian Retail sales short of expectations

Retail sales in Australia again failed to meet expectations of 0.5% growth with the actual number coming in at 0.4%, though this was a pick up from last months figure of -0.1%.  Despite Australia’s two biggest trading partners taking steps to de-escalate the US-China trade war, signs that global growth is about to head sharply lower has put pressure on the commodity-sensitive currency. Even after the Reserve Bank of Australia’s 25-bps interest rate cut at the start of October, there is still a call for further cuts over the coming months.

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