Morning Report: 10 November 2017

November 10, 2017

GBP Sterling saw some intraday volatility yesterday, ultimately closing higher against USD and lower versus the euro. Little headline data was released, and news media were focussed on domestic political turmoil and ongoing Brexit negotiations, the latest round of which will conclude this week. Divorce payments remain the main point of contention, with the EU reportedly insisting on financial agreement by the end of the month in order to progress talks to a transitional agreement. Reports have emerged this morning that Theresa May is seeking to increase the current £20bn offer, a development that could potentially prove strongly sterling positive if it leads to a breakthrough in talks.

EUR The euro benefitted from a mild risk-off move in global markets yesterday, as the Nikkei 225 index led equities lower, implied volatility from S&P500 options spiked, and other funding or haven currencies such as CHF and JPY performed well against USD. How far the move will extend remains to be seen. Yesterday’s data included a big upgrade in the European Commission’s official economic forecasts for the eurozone. Growth is now expected to be a whopping 2.3% this year in the eurozone, and 1.9% by 2019. Helpfully, the Commission included a forecast that growth will fall to 1.5% in 2017 in the United Kingdom, and 1.1% by 2019 as Brexit uncertainty weighs on investment intentions. This morning’s data has included a strong recovery in French Industrial Production, which rose 0.6% after a 0.2% fall previously.

USD USD performed poorly on the whole yesterday, as tax reform proposals continued to hit stumbling blocks of various shapes and sizes. The Senate revealed plans to delay cuts to corporate taxes until 2019, in a bid to mitigate the fiscal effects of the tax cut. The legislation is expected to move to the house for a vote next week. But between concerns about the fiscal impact of the tax cut, and fighting about the deductibility of state and local taxes, meaningful tax reform remains a challenging proposition for the GOP and a distant hope for dollar bulls. The US will enjoy the Thanksgiving holiday today, and no data will be released.

CAD The loonie continued its upwards march against USD yesterday, helped by further marginal gains for crude oil. Saudi Arabia issued urgent travel advice ordering its citizens to leave Lebanon immediately, after apparently seizing the country’s Prime Minister and apparently forcing his resignation on Saturday. The episode further highlights rising political tension in the area, and the more aggressive stance of foreign policy in one of the world’s most important oil producing states. Meanwhile back in Canada, the New House Price Index rose 0.2% in September, as expected.

UK news

  • FT: Theresa May ready to increase £20bn Brexit divorce offer. Eurosceptics accept more money may be needed to break talks deadlock. Theresa May is ready to increase Britain’s offer to the EU over the Brexit divorce bill, after signs that the hard Eurosceptics in her party will tolerate paying more money to break the deadlock in negotiations. Mrs May has said that Britain “will honour commitments we have made during the period of our membership” and her team are working on different scenarios that would see her considerably increase the €20bn she has already put on the table. No big breakthroughs on money were made in the sixth round of Brexit talks, which conclude on Friday in Brussels.
  • Reuters: Britain agrees to set EU “Exit Day” in law. Britain’s government said on Thursday it would use legislation to fix the time and date of the country’s European Union exit, addressing concerns of Brexiteers who fear slow negotiations and opposition to the divorce could cause delays. The government said it was proposing a change to the EU (Withdrawal) Bill currently making its way through parliament to set the exit for 2300 GMT on March 29, 2019. “We’ve listened to members of the public and Parliament and have made this change to remove any confusion or concern about what ‘exit day’ means,” Brexit minister David Davis said in a statement. The date has previously been implied by a fixed two-year negotiating period triggered on March 29, 2017, but not explicitly stated in law.

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