Last week saw Prime Minister Boris Johnson defeated by Parliament with the Withdrawal Bill set to gain Royal Assent later today. This Bill gives Mr Johnson until the 19th October to either pass a deal in Parliament or get MPs to approve a no-deal Brexit. If both of these fail, he will then be required to write to the EU to request an extension to the UK's departure date from 31st October to 31st January 2020.
Wednesday last week saw the Conservatives defeated in an attempt to call a snap election. The government will again attempt to secure a two-thirds majority of support when they return to the Commons today, the aim being to win a working majority in the House of Commons to enable Brexit to be delivered. So far however, the appetite for a general election in the UK looks to have been misjudged by the reigning PM.
This week, Johnson’s controversial prorogation request which allows the government to suspend Parliament no earlier than today (Monday 9th September) and no later than Thursday 12th September is set to begin. This will last until Monday 14th October – just days before the now critical EU Council summit will begin with the PM now obliged to attempt to secure an approved deal with 48 hours or make a request to extend the UKs departure date.
Whilst politics continues to dominate the headlines and market forces the economic calendar continues to tick over. This week, we have unemployment data (Tuesday), UK Trade Balance and Industrial and Manufacturing production (Monday). Is it business as usual for UK plc whilst the politicians continue to struggle to deliver Brexit?
GBP has understandably been seeing increasing levels of volatility over the past week with last weeks interbank range against the EUR between 1.0930 – 1.1178.You may wish to contact your account manager if you have an upcoming currency transfer for the latest news affecting GBP/EUR rates.
With the global market’s main focus on Boris Johnson’s first week ‘behind the desk’ in government you could be forgiven for forgetting that it takes two to tango. As opposition parties in the UK worked hard to secure the Withdrawal Bill last week the EU looked on and French President Emmanuel Macron is said to be at risk of vetoing any request from the UK for a further extension to their withdrawal from the EU. Pierre Sellal, the former French ambassador to the EU told BBC Radio 4 “The situation of the UK as a member state becomes every day more awkward and strained” and that Macron would require “a sufficient level of trust” in Boris Johnson and a credible acceptable alternative in order to grant a further Brexit extension.
If France were to veto an extension to the UK withdrawal from the EU then the UK would crash out of Europe on 31st October, unless Parliament suddenly approve the Divorce Bill or revoke Article 50.
The main economic event for Europe is this Wednesday when the European Central Bank (ECB)meets this week for President Mario Draghi’s penultimate policy meeting. Focus has for some time been on the September 12th meeting as pressure mounts on the Central Bank to loosen monetary policy as it struggles to spark growth and drive up stubbornly low inflation. At the Banks last meeting in July, they all but promised to deliver a range of loosening measures and Markets responded by pricing in a further package of quantitative easing and cuts to interest rates,
“We expect an aggressive easing package from the ECB,” said Priya Misra, head of global rates strategy at TD Securities in New York. TD thinks the ECB will cut rates twice, by 0.1 percentage point this Thursday and again at Christine Lagarde’s first meeting as president in December, while announcing €40bn of new monthly bond purchases.
Current EUR strength will have this expectation priced in to its current value and any deviation from this stance in their announcement or following press conference could easily cause ripples through the foreign exchange market. However, how much notice is the market taking of these events while the UK political climate continues to dominate its attention? Only time will tell.
The USD posted a three year high against GBP on Tuesday last week of 1.1958 on the interbank exchange as uncertainty remained high around the UKs divorce from Europe and investors flock to hold safer assets. However, as no deal looked less likely on the passing of the Withdrawal Bill. Interbank rates moved once again back through 1.20 and hit over 1.23 at its high.
Friday’s important non-farms payroll figures showed a disappointing 130,000 headline figure versus an expected 150,000 and Augusts payrolls figures being revised downward.
However, the data release around US employment figures showed an overall flatline in the US unemployment rate of 3.7pc and that the participation rate rose marginally to 63.2pc from a previous figure of 63pc giving a mixed picture on the state of the US labour force. This varied result could mean there is less obvious pressure on the Federal Reserve as they approach their next policy meeting over September 17-18.
The Federal Reserve have been in the spotlight for some time with expectations of further interest rate cuts ramping up. President Donald Trump has been publicly critical of the Feds failure to cut interest rates more aggressively for some time, as he believes that the high rate is leading to cooling inflation and aiding an economic slowdown in the US. Ahead of the non-farms figure on Friday, Trump took to Twitter once again to criticise recent monetary policy from the Fed “…the Fed should lower rates. They were WAY too early to raise, and Way too late to cut…” Recent GDP figures show that the US economy grew at a rate of 1.9pc over the last quarter against an expected figure of 2.1pc. Data from CME Group show that market bets imply a probability of more than 90% that the Federal Reserve will cut interest rates by 25 basis points at its next meeting but the pace of future cuts is still unknown. Market expectation is for at least two rate cuts before the end of the year.
This week’s economic highlights for the States include CPI expected at 1.8pc which measures the change in prices of goods and services contained in a basket of consumer items. The Central bank pays very close attention to this figure in its role of maintaining price stability. Retail Sales figures on Friday afternoon may give the Fed further food for thought.
The Australian dollar posted a ten-and-a-half-year low versus the US dollar last week on the back of disappointing retail sales figures showing a decline of 0.1pc in July against the expected 0.2pc increase. The Australian economy has been under increasing scrutiny as the leading economic indicators suggest a significant slowdown in a typically resilient economy. Sluggish household consumption has been a particular concern for the Reserve Bank of Australia as the sector accounts for over 50 per cent of the Australian economy and has been a major contributor to the two recent interest rate cuts taking levels to a record breaking low of 1pc.
However, AUD has shown more resilience against GBP in the face of political uncertainty in the UK and interbank rates fell back below 1.80 towards the end of the week and continue this trend this morning.
The Australian economy has been under mounting pressure from worldwide events as other central banks begin to cut interest rates and its close ties to Chinese production as a major exporter to the Chinese. As China struggles to counterbalance aggressive tariffs imposed by Donald Trump on Chinese goods being imported in to the US, the Australian economy has been caught in the tailwinds. Australia ships around a third of its exports to China, mostly commodities such as iron ore and coal, as growths slows to a 30 year low so will the demand for these goods.
Markets continue to monitor the situation closely, as although Australia enters its 28th year of successive economic growth the record low interest rates and concerns of a global slowdown come in to focus and could challenge this stat. This week gives an insight in to both business and consumer sentiment downunder, both are key in gauging the health of an economy.
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