Daily Brief

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Trick or treat?

Event horizon

Black holes were in the news on Wednesday. The world saw a picture of one for the first time and Brexit possibly crossed the event horizon of another, the point beyond which "it cannot escape and will be ripped to pieces, atom by atom".

The European Council's decision to extend the Article 50 process of Britain's resignation from the EU was not a surprise, though the period of that extension looks slightly tongue-in-cheek: six and a half months to Halloween. It gives parliament more time to chase its collective tail and come to no conclusion. The prime minister continues "to believe we need to leave the EU, with a deal, as soon as possible". Parliament continues to oppose that deal, for a multitude of reasons.

Investors took the announcement in their stride. The cliff-edge has been moved far enough away to remove any imminent risk of a no-deal Brexit.  Sterling did fairly well on Wednesday in anticipation of the postponement, strengthening by an average of 0.2% against the other majors and adding half a US cent.

Patience at the central banks

The European Central Bank and the Federal Reserve both reaffirmed the message that interest rates are not about to go up. Mario Draghi at the ECB listed the risks facing the euro zone and the Federal Open Market Committee minutes said "the Committee will be patient".

Sig. Draghi made no adjustment to earlier guidance that interest rate will remain at record lows "at least through the end of 2019". There was nothing in his comments to suggest optimism: economic weakness in the zone has been "somewhat longer-lasting" than expected and he was keen to reassure markets that the bank has not run out of stimulatory ammunition. The euro was the major-currency back marker, down by three quarters of a cent against sterling.  

Economic data over the last 24 hours were rather overshadowed by the central banks and the Brexit delay. They included a set of above-forecast UK output figures, probably boosted by pre-Brexit stockpiling, and a 1.9% US inflation rate, which was also higher than expected. Overnight China reported a jump in consumer price inflation from 1.5% to 2.3%, which still fell short of the forecast 2.4%.

What next?

With the cliff edge pushed back to 31 October investors will be keen to discover how parliament intends to fill the six months between now and then. If they discover that it will involve Meaningful Votes 4 through 40 they will be unimpressed. But that is what they could well hear from the Prime Minister when she updates the House of Commons today.

There are no UK economic statistics on the agenda between now and the weekend. Nor are there any highly-important hard data from anywhere else. Today's offerings are Swedish inflation and US producer prices. Tomorrow's are Chinese trade, Euroland industrial production and US consumer confidence.

It is hard to imagine what will keep sterling aloft in the immediate future. Disaster has been averted by the delay to Brexit but uncertainty has been prolonged, and that could weigh on economic activity and the pound.  

GBP Takes Article 50 postponement in its stride

GBP Takes Article 50 postponement in its stride

USD FOMC minutes still talk of patience

USD FOMC minutes still talk of patience

CNY lower despite inflation jump

CNY lower despite inflation jump

EUR Little optimism from ECB chief

EUR Little optimism from ECB chief

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