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Daily Brief

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Dawning realisation

31/12 is the new 31/1

Election euphoria has given way to a dawning realisation that passage of the EU withdrawal bill - presumably on Friday - will not preclude a no-deal Brexit. The pound is still above its Thursday night takeoff point but it was the weakest performer on Monday, for a second day.

A Downing Street source said: 'Our manifesto made clear that we will not extend the implementation period and the new withdrawal agreement bill will legally prohibit government agreeing to any extension.' In other words, the Prime Minister will bind his own hands, lest he be tempted to extend negotiations beyond the end of 2020. 

It could be that by doing this he hopes to impress upon his EU counterparts the urgency of securing a trade agreement. Perhaps he thinks the deadline will allow him to sign up for a softer Brexit, claiming force majeure. But at first glance it looked to investors like an own-goal. The pound lost an average of 0.8%, giving up a cent each to the euro and US dollar. 

Transatlantic growth gap

There was very little to separate the other major currencies on Monday. The USD, CHF, CAD, NZD, SEK and NOK were precisely unchanged against one another while the EUR and AUD were adrift by just 0.1% - no more than a rounding error. 

The picture painted by the economic data showed America doing better than Europe. Despite last week's relatively upbeat assessments of German investor sentiment, the  manufacturing sector purchasing managers' index looked as sickly as ever at 43.4. The pan-Euroland manufacturing PMI was dragged down to 45.9 and all but one (Euroland services at 52.4) of the European measures came in below forecast. That included Britain where manufacturing and services registered 47.4 and 49.0 respectively.

By contrast, Markit summarised America's 52.5 and 52.2 as "Business activity growth accelerates to five-month high". For good measure the NAHB Housing Market Index jumped five points to 76, the highest reading in 20 years.

Financial stability and jobs

When governor Mark Carney introduced the Bank of England's Financial Stability Report yesterday evening, he reassured investors that UK banks will survive Brexit, whatever its shape. The risk of no-deal might not have disappeared, "it's just become less likely". Dr Carney will be speaking again this evening in Frankfurt.

Ecostats are relatively plentiful on today's agenda. NZ Business confidence improved again in December, halving from -26.4 to -13.2. Mortgage lending in Australia showed a "strong pick-up in demand". UK data this morning cover employment and manufacturing orders. Other than October's balance of trade there are no data from the euro zone.

The US statistics after lunch include housing starts, building permits, industrial production and capacity utilisation. Canada reports on manufacturing shipments, which are forecast to have been almost static in October. Tonight brings the balance of trade numbers for New Zealand and Japan. 

GBP: PM will leave no-deal on the table

GBP: PM will leave no-deal on the table

USD: Better data than Europe

USD: Better data than Europe

EUR: Worse data than the States

EUR: Worse data than the States

NZD: Business confidence improves

NZD: Business confidence improves

AUD: Strong mortgage demand

AUD: Strong mortgage demand

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