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Yet another critical week for Brexit

Too small; throw it back

On Friday, investors abandoned, or at least temporarily forgot, their usual optimism about a post-Brexit trade deal with Europe. The media were peppered with headlines indicating that the UK government is prioritising fish over finance in the negotiations, despite the economic inequity between the two.

The EU apparently offered to hand to the UK around a sixth of the fish quota currently being caught by continental operators. The offer was deemed unacceptable because it would leave the EU with 80% of the access it enjoys now. There was no sign of such haggling about the UK finance sector, which generates a tenth of all tax revenues and employs more than a million people. In the absence of any reassurance – or even any knowledge - about what the future will hold, financial institutions are shifting front and back office activity across the Channel. Two banks, Morgan Chase and Goldman Sachs, have already moved 300 staff to the continent.

Sterling’s usual resilience crumbled and it lost nearly a cent to the US dollar and the euro. It staged a modest recovery when trading began this morning in the Far East, courtesy of some optimistic words from Foreign Secretary Dominic Raab on Sunday, but it is still well down from Friday’s London opening. The pound is in last place, an average of 0.4% lower with losses of a third of a US cent, two thirds of a Swiss cent and three quarters of a euro cent.

 

EU confidence softens again

The EUR, CHF and SEK were in close contention for first place, the euro eventually winning by a nose. The result came despite a soggy set of confidence readings from the European Commission.

According to the EC, economic sentiment was “markedly down” in November falling five points to -17.3. Consumer confidence fell two points to -17.6 and industrial confidence was a point lower at -10.1. There was a modest improvements in business climate, up from -0.73 to -0.63, but economic sentiment faded three and a half points to 87.6.

The remainder of Friday’s ecostats added almost nothing to the debate. Better-than-expected Swedish data for October’s retail sales and third quarter GDP were constructive for the krona but not game-changing. 

 

Quantity not quality

Whilst there is no shortage of economic statistics today, almost none of them are of any great importance. The UK data, all from the Bank of England, cover money supply, lending and mortgage approvals.

Japanese figures this morning for retail sales and industrial production were better than expected but not sufficiently so to prevent the yen moving lower. A nine-point improvement in NZ business confidence might have helped the Kiwi higher but it took its time doing so; the NZD’s upward move came an hour after the data.

European ecostats this morning relate to Spanish, German and Italian inflation and Swiss retail sales. After lunch, the North American numbers cover Canadian producer prices and building permits, and US pending home sales, the Chicago purchasing managers’ index and the Dallas Fed’s manufacturing index. None of those is likely to set the market alight.

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