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Out of the frying pan, into the fire

By Hamish Muress

It really is ‘out of the frying Brexit pan and into the Brexit fire’ at the moment for the government although this time it seems somewhat self-inflicted. Yesterday Speaker of the House John Bercow said there was an ‘arguable case’ the government was in contempt following its decision not to release the full legal advice on Theresa May’s Brexit plan. The motive behind May and Attorney General Cox’s decision is uncertain at the moment but the long and short of it is that Cox and maybe David Lidington could be suspended at a time when the Prime Minister needs as many supporters (and votes!) as possible.

Interestingly as well (and I am not saying the writing is on the wall here) the European Court of Justice is set to meet today and offer its preliminary reading as to whether a member state can revoke Article 50 once it has been triggered.

Elsewhere the strong growth that the UK saw in Q3 struggled in October and as we moved into Q4. Yesterday’s manufacturing data was a welcome pick up though with the readings beating expectations with new orders in particular impressing. The pound only has one focus in mind and that is the December 11th.

The de-escalation between the US and China on its ‘trade-war’ was welcomed by many and provides businesses a reprieve at least until March 1st 2019. Markets however were slightly less impressed with the US dollar and the markets shooting out of the gates at the open before slowing considerably. There was probably more positive news for the US dollar in the form of the strong ISM manufacturing index for November. It is a big week for the dollar on the data front and it seems slightly unusual that the market should shift its attention back onto these reports including ADP numbers and Non-Farm payroll figures. Market focus constantly shifts and wanes in importance but given the dovish remarks from the Fed Chairman Powell last week which caught the market unaware the focus is thoroughly back on the fundamentals and the data releases for the time being.

Europe strike a tough bargain, think Brexit but also the Italian budget. The latest news and reports is that the European Commission have convinced Italy to limit its budget deficit to around 1.9%, a far cry from the 2.5% initially touted by Deputy PM Salvini. The chaos facing French President Emmanuel Macron has not spilled over into the markets yet whilst EUR/USD struggles to break thought the 1.14 barrier.

The final Reserve Bank of Australia decision of the year came and went like all the rest with the RBA leaving its cash rates unchanged at 1.5%. The effect on the Aussie was minimal with the decision to leave rates unchanged very much priced in. The next RBA meeting isn’t until February and it is unlikely that there will be any change then either.

The Bank of Canada meets tomorrow before its jobs report at the end of the week. For the BoC though the theme is similar to the RBA mentioned previously, no one expects a change and this is unlikely to April 2019 at the earliest

The recovery in the Kiwi is still on the tracks and yesterday was very much the case still with GBP/NZD dropping through 1.8400. The latest global dairy trade auction is on the cards today but the main driver for the Kiwi will remain the US/China trade war for the time being.