Daily Brief

Daily Brief

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No cliff-edge and no election…

…yet

The EU's three-month flextension to Article 50 went down well enough with investors, though it came as no surprise. Parliament's third rejection of the government's request for a general election was equally predictable. However, neither decision prevents an eventual no-deal Brexit. They are more postponement than prohibition.  

The A50 extension expires at the end of January. It would be a triumph of hope over experience to assume that the government and Parliament will use the time to achieve a Brexit breakthrough. Continued lack of progress would set the stage for another extension in the new year. It would also increase the risk of a no-deal cliff-edge in 14 months' time, given the narrowing time-window to agree a trade deal with the EU before the end of 2020.

If the prime minister could take advantage of a general election to secure a working Commons majority, he would presumably use it to get his withdrawal bill through Parliament and take Britain out of the EU promptly. But there are obvious hurdles. First, Parliament must approve the election and, second, Johnson must win a majority: Another hung Parliament would not cut it.  

Trade optimism

Away from London the focus was on Sino-US trade. It is not an easy thing to focus on, given the lack of concrete evidence, but investors were inclined to believe that the two sides will sign a trade deal next month.  

That belief gained at least a little support from the US president who said that he expected to sign "a very big portion" of the trade agreement "ahead of schedule". The trade optimism was of greatest help to the Australian dollar, which led the field with a half-cent gain over the second-placed British pound.

Monday's ecostats added little to the mix. In Britain, the CBI's Distributive Trades Survey improved ten percentage points on the month to -10%, despite record high stock levels coinciding with flagging sales. The two US Fed indices both faded, Chicago's national activity index from 0.15 to -0.45 and Dallas's manufacturing index from 1.5 to -5.1.

Money supply and elections

Tokyo inflation figures provided the opening shot today, with the headline rate at 0.4% and the core reading, excl. fresh food, at 0.5%. Nationwide's index showed "little change" in UK house prices for October. They were up 0.2% on the month and 0.4% on the year.

There is even less excitement to come, at least for statistics buffs. UK money supply and consumer credit, US house prices and pending home sales and US consumer confidence are all investors will have to work with. Data tonight could be more interesting, with Japanese retail sales and Australian inflation.

With Downing Street's attention now shifted from Brexit to ballot, it is likely to put more effort today into getting a general election. Whether or not that means a fourth parliamentary vote on the matter today, it would not be a surprise if one came before too long.

GBP: Investors like the new extension

GBP: Investors like the new extension

USD: On average unchanged

USD: On average unchanged

AUD: Held aloft by Sino-US trade optimism

AUD: Held aloft by Sino-US trade optimism

JPY: Tokyo inflation steady at 0.4%

JPY: Tokyo inflation steady at 0.4%

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