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So close, and yet so far in Brussels. UK Prime Minister May arrived on Monday hoping to strike a deal with the EU in order to receive approval to advance to the next stage of Brexit negotiations.
Instead, an 11th hour interruption from May’s supply-and-confidence partner Arlene Foster of Northern Ireland’s hard-Brexit backing DUP party halted talks, sending the PM back to London without a deal.
Having been confident of reaching a deal – managing to negotiate a preferential border agreement with the Irish Taoiseach which appeased the EU Commission President Juncker – the DUP effectively vetoed the agreement.
This leaves May in a tricky position.
Without the political backing in Westminster to go against the DUP, and with the rest of the EU rallying behind the Irish PM, she now has until the end of the week to iron out current disagreements to appease all parties. Without this, Juncker and the rest of the EU could judge that the UK has not met a sufficient point to progress to talks on a UK-EU trade deal, a point which UK lawmakers are desperate to get to.
The Prime Minister has cleared her schedule to carve out a deal before a self-imposed Friday deadline which, if it can be reached, could help Sterling pare losses against the US dollar and the Euro.
As a result of Monday’s confidence-turned-disappointment, Sterling went on a rollercoaster ride. After initially rallying to trade a high of $1.3539 against the USD and €1.1421 against the Euro, it subsequently sharply sold-off on the ‘no deal’ announcement, falling back to $1.3371 and €1.1277 on Tuesday morning.
At the other end of the scale, Republican lawmakers in the US managed to reach an accord over the weekend as the Senate passed a crucial tax reform bill by 51 to 49 votes. The major piece of legislation, President Trump’s first passed through the Senate, paves the way for both the Senate and House of Representatives to agree on a final tax bill that President Trump can write it into law before the end of the year.
While the bill isn’t expected to see the corporate tax rate change until 2019, it has help to end a November sell-off for the US dollar, and if a final deal can be reached before year end, could see the greenback break out from a falling highs resistance pattern.
With only a solitary Fed speaker (NY Fed Governor Dudley; Thursday 1:30pm) scheduled ahead of next week’s monetary policy update, this week’s focus for the FOMC will be Friday’s always highly anticipated US Jobs report, including the closely watched Non-Farm Payrolls print. Expectations for a print around the 200,000 mark, recovering after a hurricane impacted summer, may further help the dollar’s cause.
The ECB, on the other hand, have multiple speakers lined up that could influence the Euro in the latter half of the week – at least if affairs in Brussels aren’t stealing away the headlines.
Most importantly, ECB Chief Mario Draghi shares thoughts on Thursday afternoon (4pm) at the European Central Bank in Frankfurt, Germany, while his colleague Mersch speaks at 10:30am on Wednesday.
Other data releases of note over the latter half of the week include Eurozone Retail PMI (Wednesday; 9:10am), US ADP Employment (Wednesday; 1:15pm), UK CBI Trends Orders (Thursday; 11am), UK Industrial & Manufacturing Production (Friday; 9:30am) and the UK NIESR GDP Estimate (Friday; 1pm).
Key data this week (Sign up here to receive our daily live macro-calendar)
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Intl Economic Announcements
07:00 Factory Orders (Germany)
09:10 PMI Retail (Eurozone)
13:15 ADP Employment (USA)
15:30 Oil Inventories (USA)
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UK Economic Announcements
08:30 Halifax House Prices
11:00 CBI Trends
Intl Economic Announcements
07:00 Industrial Production (Germany)
23:30 GDP (Japan)
UK Economic Announcements
09:30 Industrial & Manufacturing Production
13:00 NIESR GDP Estimates
Intl Economic Announcements
02:00 Imports, Export, Trade (China)
07:00 Imports, Export, Trade (Germany)
13:30 US Jobs Report (USA)
15:00 Consumer Confidence (USA)
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