Market Brief: MPs to review EU withdrawal Bill

11 Sep 2018

Shaun Garrett

Dealing team

Sterling struggled yesterday as further political uncertainty plagued the market, hitting a low of 1.3062 against the USD and 1.1207 against the Euro.

Today's data releases
  Key levels
09:30 UK CPI   Support Resistance
10:00 EU industrial production, ZEW, GDP
GBP/USD 1.3030 1.3230
10:00 EU Draghi, Yellen, Carney, Kuroda Speak in Frankfurt
GBP/EUR 1.1070 1.1375
13:30 US PPI

Market overview

Sterling struggled yesterday as further political uncertainty plagued the market, hitting a low of 1.3062 against the USD and 1.1207 against the Euro. David Davis extended an olive branch to Conservative Party rebels suggesting that the Government would allow parliament the opportunity to debate and scrutinise any final Brexit agreement. May’s blueprint for Britain’s exit from the EU faces a crucial test starting today, when members of parliament will debate the EU withdrawal bill that she says is vital to give companies confidence that the rules will not change after Brexit. Reports from Bloomberg have suggested that David Davis said it is 50-50 whether the UK gets a breakthrough in divorce talks by December. Talks are deadlocked over the contentious divorce bill as the divided U.K. government has been reluctant to accept the EU’s demands to make a better offer. The EU has given the UK two weeks to make more financial concessions, and says it won’t let talks move on to the future trading relationship - or even the transition deal that companies on both sides crave - until it does so. EU leaders meet December 14 for a summit and in the run-up to that meeting will decide whether the U.K. has done enough on the divorce issues to move talks along. If December is a bust, EU officials have indicated the next opportunity for a breakthrough will be in March.
German GDP figures were released at 7am this morning, and showed that German economy grew by 0.8% on the quarter in Q3, faster than expectations of +0.6% and above Q2’s pace (also +0.6%). The statistics office mentioned that net trade and investment were two big drivers. This opens up a possibility that Eurozone growth numbers will be revised up from their initial estimate of +0.6%, when new figures are released later this morning. This has supported the Euro, pushing closer to 1.1700 against the US Dollar, the highest point since 26th October. CPI Inflation figures also released from Germany were unrevised, in-line with expectations.
Chinese data for October released overnight produced softer data than market expectations. Industrial output figures disappointed slightly against consensus, coming in 0.1% lower than consensus at 6.2% and down from 6.6% in September. Retail sales figures were also softer than expected at 10.0% y/y, whilst consensus had been 10.5% y/y. The October reading was also down on September’s 10.3% y/y. The data provided further pointers to the softer H2 growth pace continuing as we head to the end of the year. We continue to see the GDP growth for 2017 overall to be more or less unchanged on 2016; our forecast is for 6.8% this year from 6.7% last year. The Aussie Dollar managed to mostly shrug off the downbeat Chinese economic data after the latest survey of businesses from NAB showed the best conditions in two decades, with sales and profits surging in October. The Aussie is sensitive to Chinese data as it is often used as a proxy for that country because of Australia’s major trade exposure.

The day ahead

As mentioned above, MPs meet today to scrutinise the EU Withdrawal bill. Alongside this the UK releases Inflation data at 9:30am, where it is expected that Mark Carney will have to pen a letter to the Chancellor to explain why the UK’s inflation reading is at 3.1%. EU GDP, ZEW and Industrial Production data is released at 10am. At the same time we are expecting to hear from Draghi, Yellen, Carney and Kuroda at a conference in Frankfurt. Investors will be keeping a watchful eye on Mark Carney as he speaks for the first time since raising UK interest rates. Finally, we cap the busy day off with PPI data from the States at 13:30.

Thought of the day

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