German President wants a coalition

Angela Merkel, the German Chancellor, has found herself in an unusual position following September’s election. She is unable to exert influence over her proposed coalition partners and is faced with either fresh elections or leading a minority Government. The President, Frank-Walter Steinmeier, favours a coalition but it remains to be seen if Merkel can cobble one together. Maybe a call to Downing Street will provide her with some guidance.

A weak German Government seriously weakens the EU since Germany is considered the bastion of power and influence across the entire region.

The common currency is suffering because of the German situation despite an upbeat message from ECB President Mario Draghi who commented yesterday that he saw strong levels of growth in the Eurozone economy, but it was still heavily dependent upon the high levels of stimulus still being provided. His comments were interpreted as saying that rates would continue to be accommodative for some time to come.

The Euro reached 1.1722 yesterday against a dollar which is currently treading water as it awaits news on fiscal reform and 0.8856 versus the pound. It is likely to be influenced by its G7 partners as the year end approaches with the FOMC meeting to decide on a rate hike and the U.K. still tangled up in Brexit negotiations.

Brexit talks coming to a head

U.K. Prime Minister Theresa May appears to have created a breakthrough with her Cabinet agreeing to increase the UK.’s offer to the EU for the post-Brexit budget contribution to forty million pounds. This is still less than the EU has demanded but it is a good deal closer than had previously been the case. Whether this will be enough to unlock stage two of the talks will have to wait until December 15th when a two-day EU Heads of Government Summit concludes.

Mrs May has finally been able to convince the hard-line members of her Cabinet that further concessions are necessary, but the likes of Boris Johnson and Michael Gove will continue to be a thorn in her side, promoting a hard Brexit and continuing to threaten the no-deal scenario.

The pound been encouraged by the news continuing a week-long uptick against the dollar reaching 1.3280 before settling back on a short-lived bout of profit taking.

This week’s U.K. budget will interest traders who will be looking for some expansive policies and help for small business from Chancellor Philip Hammond. Some advance warning about funding and spending following Brexit would be welcomed but it is unlikely that he will give very much away in what will be the last full year budget before Brexit.

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Yellen to stand down totally once Powell sworn in

Janet Yellen, the current Chairman of the Federal Reserve is going to leave her position as a Fed Board member once Jerome Powell is sworn in as the new Chairman. It is the practice that the ex-Chairman leaves the board once they have been replaced. It is the first time in decades that the sitting Chair hasn’t been nominated and Powell’s confirmation hearing will take place next week.

Yellen will no doubt leave the Fed with a tinge of regret having served many years, with her time crowned by being the first female Chairman, selected by Barack Obama. She has presided over a very difficult period in American financial history and was more highly regarded economically that politically clearly seen as an easy target by President Trump during his campaign. He has changed by almost 180 degrees by calling for monetary policy to be normalized during his campaign to encouraging further stimulus once in Government.

Mrs Yellen will be able to follow her predecessors into the private sector and it is unlikely that she will be short of job offers. Her opinion will be heavily valued and there is no doubt she will write a memoir about her time at the Fed.

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