Big deals for investors
Unbridled optimism at the end of last week saw the safe-haven Japanese yen relegated to the back of the field while the British pound stormed to the front. It did not happen just once but on three successive days. The two main drivers were a Sino/US trade thaw and the prospect of a Brexit agreement.
Crucially, neither amounted to an actual deal. However, also importantly, both were several steps ahead of their positions at the beginning of the week. The two main protagonists in the trade war came to a truce as Beijing made "a series of modest concessions" and in return the US president suspended a batch of tariffs scheduled for 15 October. There were no signatures, just handshakes. Even so, investors welcomed the de-escalation.
There were no signatures on the prime minister's Brexit proposal either, but there was much talk of progress and common ground after he met Irish Taoiseach Leo Varadkar on Thursday. The pound had its best two days percentage-wise since before the EU referendum in the latter half of last week. Revived Brexit deal hopes pushed sterling to $1.25 on Friday following a 1.9% on Thursday. Dominated by meetings between Brexit Secretary Steve Barclay and EU chief negotiator Michel Barnier (seen as constructive), and UK PM Boris Johnson and Irish PM Leo Varadkar (also seen as detailed and constructive), European Council President Donald Tusk also stated that he has received “promising signals” from Varadkar on Brexit.
Sterling has since receded amidst reports that there is still a long way to go until a deal is reached. Crunch time comes this Thursday, when the European Council summit begins, but also investors will be all eyes and ears for BOE Mark Carney’s statement tomorrow.
No recession yet
All but one of the UK economic data on Thursday morning were horrid. Sterling made a lucky escape as a result of the gross domestic product numbers, which suggested that the UK economy will not find itself in recession in the near future.
GDP expanded by 0.3% in the three months to August even though it contracted by 0.1% in August alone. Separately, the NIESR estimated that the economy grew by 0.5% in the third quarter and that it will expand another 0.3% in Q4. Those numbers neutralised the impact of a dire set of production data which put both manufacturing and industrial output lower on the month and the year.
The best readings at the end of last week came from across the pond. Canada's employment figures were huge, with 54k new jobs in September lowering the rate of unemployment from 5.7% to 5.5%. the Loonie took second place on Friday behind sterling. The provisional Michigan index of US consumer sentiment was also surprisingly strong, nearly three points higher on the month at 96.0.
Taking more prisoners
A new session of Parliament will be opened today with the Queen's Speech. Incarceration - for more and for longer - will feature prominently, together with other non-Brexit-related measures.
Given the prime minister's desire for a general election, the speech will be seen more as a campaigning tool than a guide to imminent legislation. Of far greater interest to investors this week will be the progress - or not - of the prime minister's Brexit proposal through the EU summit and Saturday's debate in the House of Commons.
Ecostats today are few and relatively unimportant. All that remains for the London session is Euroland industrial production.