Make or Break Weekend as May faces a political abyss

UK Prime Minister Theresa May has offered MPs a greater say in the definition of the backstop agreement that is demanded by Brussels should her Brexit agreement be defeated in the Parliamentary vote next Tuesday.

The compromise has already been dismissed by the Leader of the Ulster Unionists, who called it “parliamentary tinkering”, and rebel MP’s from her own Party who labeled the offer desperate.

There were rumours yesterday that Tuesday’s vote may be postponed but they have been dismissed from all sides and it now appears that Mrs. May’s entire Premiership not to say her Political career rests on the what happens in the next five days. It appears inconceivable that the Brexit agreement will pass as originally presented and no one really knows what will happen next:

• A confidence motion in Mrs. May may now gain sufficient support from Conservative MP’s as it will become clear that she will have taken Brexit as far as she can.
• Mrs. May may resign although she has constantly affirmed that she won’t.
• The opposition may table a vote of no confidence in the Government which would require the DUP to end their support of the Government. This would lead to a General Election.
• Brussels may agree to fresh negotiations or an extension to the March 29 departure date although the mood in Parliament won’t allow that to happen.

Since there is no Parliamentary majority in favour of “no deal” it probable that negotiations will continue and a lot depends on how flexible the EU Heads of Government are prepared to be since they have already stated that this deal is the best that the UK can hope for.

Sterling continues to tread water with traders content to “stick with what they have”. Yesterday, it traded between 1.2812 and 1.2699 with mostly commercial business being transacted as investors and speculators remain on the sidelines. It closed at 1.2787.

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Rate hikes in doubt as economic concerns grow

Usually, by the time we reach a quarter of the way into a new month, the U.S. employment report and the wave of excitement it generates has receded but occasionally the calendar means that we wait longer than usual for the monthly lottery. Today is such a day and reality will be suspended for a couple of hours this afternoon as the non-farm payroll report is released.

Analysts have long since given up on predicting what the headline will be, simply using the six-month average as their best guess. There is always speculation about a revision to the previous number, particularly if it is an “outlier” like last months. 250k new jobs were apparently created in October and any downwards revision, particularly if it is accompanied by an average, or just below, read for November, may see the dollar under further pressure.

It is now becoming apparent that the market is getting a little dubious that there will be three rate hikes in 2019 especially since members of the FOMC are now reporting themselves to be data-driven. As the economy slows and with inflation under a semblance of control, if they stay true to their words, three may be the best dollar bulls can expect.

The dollar index fell yesterday reaching a low of 96.55 although traders are loathe to take fresh positions ahead of the employment report.

Eurozone GDP to confirm significant slowdown

Q3 growth data will be released today by the Eurozone and given the German data released recently, it is probable that bit will struggle to show any growth at all. Estimates put QoQ growth at just 0.2% contributing to a YoY figure of 1.7%.

It is difficult to see how the ECB can promote growth in the region given just how accommodating monetary policy already is. A continued weakening of the currency may see export growth but the ECB and Germany, in particular, will start to be concerned about the inflationary effect. We have already seen a significant rise in producer prices for the entire region this week and this will have sounded a few alarm bells amongst those concerned about the overall strength of the economy.

Angela Merkel, the German Chancellor fuelled nationalist concerns in Germany yesterday when she called upon other EU nations to help take up the slack in the EU budget created by the UK’s departure. She is concerned that an unfair burden will be placed upon her country once the UK’s contribution dries up.

The single currency was stronger yesterday against a weakening dollar reaching 1.1412 and closing at 1.1382.