Momentous day overshadowed by U.K. turmoil
David Davies the U.K. Brexit Minister will meet his EU counterpart Michel Barnier at 11am in Brussels this morning to commence the formal negotiation of the U.K.’s departure from the EU.
With her leadership hanging by a thread, it appears tha Prime Minister (for now) Theresa May has agreed a more conciliatory approach ditching her “no deal better than a bad deal” refrain.
It seems that a demand from the EU to agree the “divorce settlement” amount at the start of the talks as well as the “fate” of EU nationals living in the U.K. has been accepted in exchange for a timetable for a trade agreement.
The pound continues to perform in a sanguine manner with traders awaiting a clearer picture of events before committing to new positions.
Last weeks MPC meeting and its 5-3 vote has delivered the possibility of a more hawkish Bank of England despite “chief hawk” Kristin Forbes leaving next week.
Her mantle will be handed on to Ian McCafferty and Michael Saunders. Both are experienced “City” economists who bring a “commercial” and pragmatic to the discussions.
Serene EU brings Draghi some respite
Mario Draghi the President of the European Central Bank has had anything but a smooth ride since taking over from Jean-Claude Trichet in 2011. Having cut his teeth at the Banca D’Italia, Sr. Draghi is used to tumultuous situations.
He can therefore be proud to have achieved an economic solution for the nineteen State Eurozone where political will has driven consensus.
The ECB was “last to the party” when it came to unusual measures need to stimulate the economy. While the Fed and BoE followed the Bank of Japan’s lead into quantitative easing, Draghi was more cautious, concerened about debasing a currency that was a little over fifteen years old. Finally he agreed that such measures were necessary. His concerns over Eurozone-wide inflation are well known and he has confirmed that while adjustments to the Asset Purchase Scheme may be necessary, the lack of inflationary concerns mean that a rate hike is some way in the distance.
The Euro is maintaining a steady path. Despite three rate hikes in the U.S. which have seen the interest rate differential widen, the euro has gained 8.8% this year before settling down but still well supported above 1.1000.
Data light weak will be dominated by politics
There is little in the economic calendar this week to excite the market so politics will continue to dominate.
The turmoil in the U.K. is well documented but President Trump could also face a difficult week.
He has confirmed that he is under investigation over “Russiagate” but has ridiculed the investigation stating that “I under investigation by the Deputy Attorney General for firing the FBI Director despite the fact that it was the Deputy Attorney General who advised me to fire James Comey in the first place.”
Despite gaining a reputation as “President Teflon”, Trump needs to ensure that he has sufficient credibility to pass to pass his fiscal and stimulus packages if janet Yellen is not to be seen as too far ahead of the curve in hiking rates three times in six months.
In contrast, French President Emmanuel Macron is leading a charmed life. Following a stellar performance in the Presidential Election, he has led his Republique En March party to a resounding if not landslide victory in the Parliamentary election. En March gained 355 of the 570 seats being contested, well short of the predicted 470 seats but enough for a clear majority.