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Brexit manoeuvring causes rather restrained volatility

Published: Friday 16 November 2018

  • Eurozone inflation due today
  • Canadian Dollar looking strong against the Pound and Euro
​​By David Johnson

Wow, we have rarely had such a roller coaster day as we got from the Brexit melee yesterday. Now I am guessing, if you were interested, you already know all the news but, to recap; The cabinet approved the Prime Minister’s Brexit plan, then some cabinet members resigned. Then Theresa May presented the plan to Parliament, Jeremy Corbyn hadn’t read it properly but still derided it. Then more ministers resigned, then there was a threat that Michael Gove was going to take a run at the PM to oust her, then they couldn’t get enough support for that plan and then Theresa May called a press conference – and was late – and everyone assumed she was going to resign. She announced she was going to fight on and then we all went home for tea and cakes and lashings of ginger beer. 
Meanwhile Sterling was up and down like a theme park ride but within recent ranges. News reports tend to speak in unbridled superlatives but a cent or so of movement in Sterling doesn’t constitute the Pound ‘tanking’ in the minds of traders.  No one will have noticed but, in the midst of the development, we heard that UK retail sales fell to just 2.2% growth last month against a forecast of 3% or thereabouts. It is hard to know whether the markets reacted to it because there were too many other stories burbling along in the news.  Now it is Friday and goodness only knows what will happen next.
What we do know is that the Eurozone inflation data will be published this morning. That is expected to be roughly in line with last month’s annualised 2.2% but so many Eurozone data releases have been disappointing of late, we could be disappointed. Traders in the Euro are also weighing up the threats to remove Italy from the Eurozone. That threat was issued by a leader of one of the governing coalition parties.
This at a time when Italy’s insistence on ignoring EU budget rules is threatening the Eurozone’s integrity. For countries who aren’t tied to a shared currency, their currency fluctuations act as a natural counterbalance to poor economic conditions. Very crudely put, a poor economy weakens the currency, that makes exports more cost effective for overseas buyers but fuels inflation and that prompts interest rate hikes. The higher interest rates attract investors (once the currency has stabilised) and that helps to encourage economic growth to some degree. I know this isn’t a perfect economic map but it is part of a natural cycle. Without this balancing factor, it is hard for Eurozone countries to manage their own economic peaks and troughs. That is one of Italy’s problems and concerns.
This afternoon’s sole data release from the US is the industrial production report. The forecast is for a recovery, albeit a marginal one. The US Dollar is not likely to react unless the growth rate increases above 5.2% on an annual basis.
Canada will also release manufacturing sales data which is also expected to be a little better than last month’s 0.4% contraction. The Canadian Dollar is very strong against the Pound and Euro and an improvement of this sort won’t harm that in any way.
But our eyes are going to be glued to every twitch and twist on the Brexit manoeuvring. It’ll be a long weekend for us and an even longer one for Theresa May.


John and Matt were hiking in the mountains when they came across a huge hole which looks like it goes straight down. 
"Wow," said John. "I can’t see the bottom. I wonder how deep it is."
"I dunno," said Matt. "Let's see." With that, he picked up a rock and dropped it into the hole. They both craned their necks to await the sound of the rock landing but there was no noise. 
"Hmm. Let's try a bigger rock," said John, as he lugged a basketball sized stone across the path and lobbed it into the abyss. They waited a couple of minutes but heard nothing.
“Maybe the bottom is soft soil or something. We need something noisier,” said Matt. They looked around and came across an old railway sleeper. It has some nails sticking out with metal hoops on, so they figured it had to be noisy enough for the task. They took an end each and carried it to the hole before heaving it into the void. As they waited to hear it bottom out, a goat suddenly appeared and streaked between the two of them, bleating like mad before leaping into the hole. 
They were perplexed and worried for the fate of the goat and, as they pondered that, a chap came up the path behind them.
“Have either of you guys seen a black and grey goat?” he asked.
"Yeah, just now," said Matt. "Weirdly, it just tore past us and threw itself down there." He pointed at the hole and the new chap took a look in.
"Yeah, they say that is over a mile to the bottom.” said the new chap. “It’s was a tin mine once upon a time but it’s disused now. Thanks for your help but that couldn’t have been my goat. No way old Billy could run anywhere. He was tied to a massive railway sleeper.”

Today's Major Economic Releases

Market BST Data/Event Previous Expected
EUR 10:00 EU: Final Consumer Price Index 2.1% 2.2%
EUR 10:00 EU: Final Core Consumer Price Index 1.1% 1.1%
CAD 13:30 Canada: Manufacturing Sales -0.4% 0.1%
CAD 13:30 Canada: Foreign Securities Purchases 2.82b 0.30b
USD 14:15 US: Industrial Production 0.30% 0.20%
USD 14:15 US: Capacity Utilization Rate 78.3% 78.1%
GBP 14:30 UK: Conference Board Leading Index -0.2% -0.2%

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