Daily Brief

The honeymoon is over

Getting sterling done

Since the pound made its exit-poll-inspired upward leap on Thursday night, it has never looked ahead. As the enormity of the Prime Minister's strategy sank in, investors were forced to recognise that a no-deal Brexit is back squarely on the table. Only the date has changed.

There had been an assumption among investors that Johnson's huge Commons majority would allow him to disregard Brexit hard-liners in his own party and forge a minimally-disruptive trade agreement with the EU. His self-set legal time limit would make that outcome difficult or impossible to achieve, even if it were the Prime Minister's inclination. A further sign of disengagement came with Johnson's decision to boycott next month's World Economic Forum.  

With all that in mind, investors continued to revise down their ambitions for the pound. Having given it a kicking on Monday they redoubled their efforts yesterday, knocking it back by an average of 1.2%. Sterling's losses included two yen, two Swiss cents, one and three quarter US cents and one and a half euro cents.

Unhelpful numbers

As if the Brexit story was not enough to set investors against sterling, the UK economic data also had a negative impact. Wage growth slowed and manufacturing orders continued to decline. Only the low rate of unemployment provided any light relief.

The ONS Labour market overview showed unemployment remaining at its lowest level since 1975, while employment - the participation rate - rose to an all-time high of 76.2%. On the downside, jobseeker numbers increased by more than forecast while basic earnings growth slowed to 3.5%. The CBI's Industrial Trends Survey found "manufacturing output falling at the fastest rate since 2009". Respondents blamed the decline on uncertainty and the threat of higher tariffs after Brexit.

Investors could draw no conclusions from a widening of the euro zone trade surplus in October and were not blown away by increases for US housing starts and building permits. US industrial production and capacity utilisation came in close to forecast. The US dollar and the euro were unchanged against one another.

Inflation in Europe and Canada

The top-ranking ecostats today relate to consumer prices in Britain, the euro zone and Canada. Whilst the Euroland data are unlikely to affect monetary policy, the figures from the UK and Canada might influence investors' view of the pound and the Loonie.

Britain's headline inflation rate is pencilled in at 1.4%, well short of its 2% target. With the election out of the way, no-deal Brexit uncertainty back on the table and two votes for a lower bank rate at the last MPC meeting, a low print today might encourage some to look for a rate cut tomorrow (though the consensus is for no change). The same, to a lesser degree, is true of the Canadian data: lower inflation could weigh on the Loonie.

Tonight the antipodes will be in focus. New Zealand leads with the balance of trade and third quarter gross domestic product. Australia follows with new home sales and the capricious monthly employment numbers. No change to monetary policy is expected from the Bank of Japan.

GBP: Squashed again by no-deal Brexit threat

GBP: Squashed again by no-deal Brexit threat

EUR: Unaffected by wider trade surplus

EUR: Unaffected by wider trade surplus

USD: Unmoved by stronger housing data

USD: Unmoved by stronger housing data

CAD: Inflation data this afternoon

CAD: Inflation data this afternoon

NZD: Third quarter growth due

NZD: Third quarter growth due

AUD: Employment figures tonight

AUD: Employment figures tonight

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