Daily Report 14/11/2018

Good afternoon everyone,

UK economic data is continuing to play second fiddle to Brexit headlines. Yesterday’s labour market figures showed a further rise in regular pay growth to a decade high rate of 3.2%. Today, the UK October CPI showed inflation staying above target at 2.4%. The Euro area focus remains on the European Commission’s response to Italy’s budget which could still weaken the Euro depending on Italy's stubbornness.

BREXIT News

The U.K. and European Union negotiators have reached a Brexit withdrawal deal but is it too soon to celebrate? Well YES & NO. For months, negotiations have been at impasse over what’s become known as the Irish backstop. The most difficult section of the agreement is the bit dealing with this issue. Pro-Brexit ministers will be worried whether it traps the U.K. in the customs union indefinitely. So getting the Cabinet on board is one hurdle. Assuming she does, a special EU summit could come end of the month, Nov. 25 is a touted date to get all leaders to give it their rubber stamp. The problems, as always, are back home.

She would still need to get it past Parliament, where the government doesn’t have a majority and faces opposition on all sides. This historic decision is going to hang on just a handful of votes. The biggest risk comes from about 50 furious pro-Brexit Tory lawmakers who think she’s caved to the EU and betrayed the electorate’s call to regain sovereignty. There is also the danger that the 10 orthern Irish lawmakers propping up her government could shoot the deal down. Some pro-EU Tories aren’t very pleased either. With the numbers this tight, May’s whips are fishing for support in the pposition Labour Party while turning the screws on their own.

What happens if we don't get a deal and how bad would it be?

If Parliament rejects it, Labour will push for a general election. But the chaos that ensues would probably also provide the best chance for lawmakers to push for a second referendum. A group of members of Parliament from across the House of Commons are trying to engineer a re-run but so far there’s nowhere near a majority for it.

When could there be a vote in Parliament?

It’s the question on everyone’s lips, especially FX traders. The expectation is sometime in December. Assuming May gets her deal past Cabinet and signed off at a special EU summit in late November we could be looking at a vote within weeks. Parliament goes into recess on Dec. 20. The deal, once it’s through Parliament should bring some relief to London’s financial hub because the grace period buys time. But because of the way the talks were structured, there’s still not much clarity about how banks will operate in the future.

For now, Sterling exchange rates will be at the mercy of comments a good example already today was Geoffrey Cox, the Attorney General, has raised significant concerns about customs backstop review mechanism. He's warned that from a legal perspective it will be very difficult to enforce & therefore to get out of. His advice will be critical in how today plays out. This comment initially weakened Sterling exchanges rates and more comments like this will be expected today and for the rest of the week.

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