Duncan Donald

Mon, Oct 7

Brexit hangs in the balance as the deadline draws closer

In Brexit UK prime minister Boris Johnson’s tenure is hanging in the balance. As the Article 50 deadline grows ever closer Johnson either seems intent on endangering his role and indeed the law in his attempt to strongarm the EU into progressive negotiation. This act, or indeed bluff has not been well received on either side of the Channel.  The contentious issue lies with Johnson threatening that he will refuse to request a Brexit extension despite being legally bound to do so, with rumours that he will attempt to gain the backing of the Supreme Court to do so. Naturally, his choice to dismiss the law will be met with heavy scorn in the House of Commons.



As the deadline and key final negotiations come with the EU next week Johnson remains hopeful an agreement can be reached on the Irish backstop. However, the revised deal proposed last week still brought a border in Ireland, a situation that sits outside the Good Friday agreement and the desires of the EU. Whilst he continues to believe there is an agreement to be found key figures across Europe have vocalised their dissatisfaction with the proposal and cast doubt that agreement can be reached within the timescales that are currently set.  So, as we set for another week of frantic negotiations the pound opens pretty much unchanged week on week as it feels market participants are tired of the toing and froing of this elongated negotiation process.

In the US last week, the stock markets and the US Dollar traded heavy for the larger part of the week following poor ISM Manufacturing and Non-Manufacturing Data which showed a retraction to levels not seen since the Financial Crisis fuelling fears over global growth and a US recession. Friday’s employment data brought reassurance to the markets as headline Non-Farm Payrolls showed just a modest miss versus expectation by 9k, coming in at 136k new jobs created, but the previous month's positive revision from 130k to 168k made up for this month’s slight contraction. At the same time, we got slightly disappointing Average Earnings coming in at showing no growth but again there was an offset as Unemployment dropped to 3.5% from 3.7% showing the US employment market was still going strong and bringing the US stock markets up to a more respectable weekly close.



US President Donald Trump remains under heavy pressure as the dialogue of a conversation between him and the Ukrainian President remains under the spotlight. After an initial informed whistle-blower emerged in September, it emerged over the weekend that there is a second whistle-blower of credible background as impeachment concerns continue to dominate. However, markets seemed relatively untroubled at the open on Monday morning despite the Presidents issues and some discussion that the US/Sino trade talks had slowed in progress.

This week the main drivers will be developments in the US Congress, trade discussions and of course Boris Johnson and Brexit. From a Central Banking perspective, we receive US Federal Reserve minutes on Wednesday Night with Jerome Powell scheduled to speak just prior.  We also get the ECB’s Monetary Policy meeting Accounts just after midday on Thursday.  For the UK GDP data on Thursday will also come into focus.


Key data in the week ahead:


Monday – German factory orders come early in the European Session. In the early evening, we hear from Jerome Powell the Federal Reserve Chairman.

Tuesday – Chinese PMI data comes early in the Asian session. In the UK session, we have 2 UK MPC members speaking. We also have a host of low-level Eurozone data in the morning. In the US session, we receive PPI data.

Wednesday – The key event of the day will be the US Federal Reserve Meeting Minutes from last month released at 7 pm, ahead of that we hear from the Fed Chair Jerome Powell at 4 pm.

Thursday – French and Italian Industrial Production comes early ahead of UK GDP at 9.30. Mark Carney of the UK MPC speaks just after the data at 10.20. In the afternoon core and non-core CPI inflation data comes at 1.30.

Friday – A relatively quiet day on the data front with the ECOFIN meeting.  The US session brings Canadian Employment and Unemployment data before US Michigan Consumer Sentiment and Inflation Expectations.