As expected, the EU approved the withdrawal agreement on Sunday. The focus will now move to the vote in the House of Commons. Prime Minister May has already appealed to the nation on the basis of the deal put forward. The vote is likely to be around the 12th December, with a campaign to garner support for this starting with a cabinet meeting today. There are further reports expected on the potential impact of a deal or no deal. We may even see a televised debate between PM May and Jeremy Corbyn.
This week, the Bank of England will publish its assessment of the impact of the agreed withdrawal agreement. The report will include the Financial Policy Committee’s assessment of the impact of the financial risks of Brexit. The Bank of England will also provide forecasts on the wider economic impact. The Treasury may also publish its assessment of alternative Brexit scenarios this week. These are expected to include a comparison of the impact of the draft agreement with a ‘no-deal’ and a ‘remain’ scenario.
Economic releases have generated little market interest with attention is so focused on Brexit. UK public finances posted a larger deficit than expected of £8bn in November. November’s UK CBI industrial trends survey showed the first acceleration in orders for five months. The CBI retail report and GfK consumer confidence will provide updates on economic conditions. The analysis around the potential Brexit deal or no deal is likely to overshadow these releases.
GBPEUR – 1.1290
GBPUSD – 1.2817
Last Thursday, there were reports that UK and EU negotiators had agreed to a draft political declaration on their future relationship. European Council President Tusk confirmed that the draft had been sent to member states ahead of Sunday’s EU leaders’ summit. There were some last minute wobbles with the Spanish PM raising questions over Gibraltar. However, in the end, the withdrawal agreement was approved within one hour of discussions at the summit. Following this approval, the head of the European Commission said anyone in Britain who thought the EU might offer better terms would be ‘disappointed’ because this was the only deal.
Today’s focus will be on the German IFO survey for November. The German economy contracted in the third quarter and business surveys have suggested there has been little improvement in the fourth quarter. There were declines in the recent PMI surveys and the current conditions and the expectations of the IFO survey are likely to be weaker. The economic outlook in Germany, and the Eurozone is likely to be a key point of discussion for ECB President Mario Draghi in his appearance before the European Parliament.
The ECB signalled that they intend to end ‘net’ asset purchases by the end of the year. Mr Draghi will likely face questions on the possibility of ‘bond-buying’ being extended, or other stimulus being provided to stem the latest slowdown in euro area growth. We expect Inflation to show a modest decrease in the ‘headline’ figure to 2.0%, close to the central bank’s target. However, ‘core’ inflation continues to be lower, suggesting that underlying inflationary pressures remain subdued.
EURUSD – 1.1353
EURGBP – 0.8857
This week speeches by Fed Chairman Powell and Vice Chairman Clarida will be important for any sign that the US central bank may be close to changing policy. After the November policy meeting, further gradual interest rate hikes were forecast. More recent comments suggest they may be close to a pause. There are concerns over the recent sharp sell-off in stock markets, ongoing international trade tensions and the potential for political gridlock in Washington to mean less supportive fiscal policy.
There are also a number of US economic data releases this week, including October personal consumer spending. The forecasts is for another monthly increase. This would show consumer expenditure remaining a primary driver of growth in the fourth quarter. Meanwhile, Thursday’s consumer expenditure deflator is likely to show inflation close to the target.
International trade tensions seem likely to be at the centre of discussions at the G20 meeting starting at the end of the week. Both US President Trump and Chinese leader Xi have indicated their willingness to negotiate on trade. Recent financial market volatility may encourage them to compromise.
GBPUSD – 1.2817
EURUSD – 1.1353
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*Interbank rates correct as at 7 am on the date of publishing