Market Brief: May backing down from Brexit showdown

In a further sign that Brexit bad news is not totally priced in to the markets, yesterday afternoon saw Cable drop half a cent on a piece of news indicating that the negotiations were heading for a catastrophic breakdown unless the European Union signals this week that it will allow talks to move on to trade.

Later in the day and ahead of the important EU Leaders Summit in Brussels Thursday/Friday, it looked as if the Prime Minister had climbed down from her push to position the Summit as a make or break event to try and expedite Brexit talks. Mrs May travelled to Brussels for talks with Jean-Claude Juncker. However, it appears that, beyond a statement of agreement on divorce talks accelerating, there was no specific action agreed. The EU Summit later this week is clearly still important in shaping the talks to come, but following the outcome of yesterday’s meeting, it still does not look as if there will be a breakthrough that leads the talks onto discussing trading arrangements quickly. German Chancellor Angela Merkel and French President Emmanuel Macron have also presented a united front and have warned that the EU would not start discussing a transition deal unless Britain puts more money on the table.

In Spain, investors are awaiting the next move in a crisis that has weighted on Spanish assets. Sources cited by TV3 report that the Catalonian regional government will not respond to Spanish government on Thursday on independence and Carlos Puigdemont, the regional president, refused to clarify whether he declared independence from Spain last week, missing a Monday deadline set by the central government. He instead called for dialogue.

The day ahead

Plenty of data out today to get excited about, beginning with Inflation data for the UK at 9.30am. This includes CPI, RPI, PPI, Retail Price index and the House Price index. The data is expected to show consumer price growth hitting a five-year high of 3.0% year-on-year, which would firm up expectations of a near-term interest rate hike. The Bank of England Governor, Mark Carney, testifies to lawmakers at 11.15am in what is sure to be a key performance in a crucial week for the central bank. The possibility of a rate hike on the 2nd November is currently at 82.7% according to the markets, which is a significant increase from where we were even 6 weeks ago. After last week’s International Monetary Fund meetings where most central bankers were worrying about weak inflation even amid robust global growth, the governor returns to an economy that’s almost the mirror opposite. While Brexit is weighing on UK businesses, price growth is above target – something he is sure to be quizzed on at the hearing.

Thought of the day

It looks like the end of the road for Satellite Navigation Systems. John Lewis has decided this week that they will no longer be selling Sat Navs. The once-considered essential car device has been on the decline for a number of years and these days many new cars come with Sat Navs built into the dashboard. With a number of free navigation apps readily available on smartphones, the need to buy a separate device is diminishing. Times are changing in the world of FX and Investec are leading the way with the Treasury Roadmap, an interactive tool that allows users to effectively monitor and assess their hedging portfolio through visual tools. If you would like assistance plotting the route of your currency hedging strategy please reach out to your dedicated Investec dealer or call 0800 055 6339 to hear more about the Investec Treasury Roadmap.