09 Nov 2017

Market Brief: 6th round of Brexit talks begin today

Sana Hanassi-Savari

Dealing team

International Development Secretary Priti Patel offered her resignation, shortly after she admitted to holding a series of unauthorised meetings with Israeli officials without the PM’s knowledge and suggested giving British aid money to an Israeli army project.

Today's data releases
  Key levels
10:00 EU Commission Autumn forecasts   Support Resistance
13:30 US initial jobless claims GBP/USD 1.3030 1.3340
15:00 US wholesale inventories GBP/EUR 1.1065 1.1440
Market overview

International Development Secretary Priti Patel offered her resignation, shortly after she admitted to holding a series of unauthorised meetings with Israeli officials without the PM’s knowledge and suggested giving British aid money to an Israeli army project. This marks the second resignation in PM May’s cabinet within one week, adding further instability around PM May’s Government. Some suggest that this may have a knock-on effect on the progress of Brexit talks. Nonetheless, the Irish PM Varadkar has signalled that Brexit talks could have a breakthrough by December, noting that “I’m more optimistic than I was in the weeks before the October Summit”. The current round of Brexit talks will resume today in Brussels.

The 6th round of talks in Brussels begins today. EU members do not appear as positive as the Irish PM, in effect, they have asked the UK to make material progress on a financial offer to the EU this month in order that the December EU Summit can adopt guidelines for talks on a transition period. In addition, the Times reports that the EU is bracing itself for an implosion in Theresa May’s government, following the resignation of Priti Patel as international development secretary yesterday. But we would point out that historically, governments with small or no overall majorities have tended to go full-term, as they did in 1974 and 1992.

External BoE MPC member McCafferty has warned that clarity on Brexit will be needed by early next year to better allow businesses to forward plan. He noted that “whether it’s no deal or some sort of deal – the banks will have to act”. McCafferty also added that UK economy remains uncertain in terms of Brexit and there are no huge differences on MPC about the trajectory for rates. Last week, the BoE’s banking regulator Mr Woods noted that it was “plausible” the UK could lose up to 75,000 jobs in the banking and insurance sector if it left the EU bloc without a trade deal.

The RICS house price index fell sharper-than-expected to +1 in October (consensus +4) from +6 in September, indicating that property price growth has flat lined. RICS reported that the fall in London and South East house prices had started to spread out to other regions, with East Anglia and the North East both returning negative balances. RICS Chief Economist Simon Rubinsohn cited various factors for the softening in the property market, including the higher cost of moving, a lack of new-build supply, political uncertainty and last week’s rate hike by the Bank of England. Price expectations for the next three months fell to -11 in October from -8 in September, the gloomiest since 2012 (aside from the sharp post-referendum fall in June 2016).

The day ahead

Looking at the day ahead, this morning we will receive the latest EC economic forecasts while the ECB’s Villeroy de Galhau, Coerue, Mersch, Lautenschlaeger and Constancio are due to speak. Over in the US we have the initial jobless claims and wholesale inventories. Brexit talks are due to resume between Barnier and Davis while President Trump holds meetings with China’s Xi Jinping and Li Keqiang.

Thought of the day

Things certainly aren’t looking pretty for the Prime Minister after her International Development Secretary, Priti Patel, resigned her post yesterday after holding a series of unauthorised meetings with Israeli officials. Having already seen her Defence Secretary quit, Mrs May faces a second cabinet reshuffle in a week! It’s certainly been a difficult year for the beleaguered PM and it’s not set to get any easier with the next EU summit fast approaching. As it stands it seems the UK and EU are poles apart on the divorce bill and this is key to beginning trade talks. All the while Sterling remains on a knife edge, clinging on for good news. With plenty of factors still at play before the years out, give your Investec dealer a call on 0800 055 6339 to discuss how Sterling could fare.

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