21 Jan 2019
UK this week
Brexit news has been all consuming over the past week and there looks to be very little chance that that changes this week.
Following the battering loss in the “meaningful vote” last Tuesday evening, Prime Minister Theresa May’s government survived a vote of no confidence held the following day. However, whilst surviving the second vote, her Brexit deal and her strategy is far from unscathed. Indeed, as has been happening over recent weeks, control of Brexit has been shifting from the Executive to Parliament and Mrs May has now been forced to seek out opinion on what Brexit proposal Parliamentarians across the House could back. This is an unenviable task. The differences of opinion are stark with the opposition leader refusing to join talks unless the Prime Minister rules out ‘no-deal’, though we note that some Labour lawmakers have been involved in discussions. What has become clear is that with so much ground to shift and legislative work to progress, a delay to the UK’s exit beyond 29 March is looking more likely.
Having said that we see a delay to the UK’s Brexit date as increasing in likelihood, the government or Parliament will need to take action to see this happen and to avert a no-deal Brexit, be it through seeking an extension to the ‘Article 50’ period or through the UK revoking it altogether. For the former, the UK will have to convince all EU member states to back such an extension, which will require at least some clarity on what the UK intends to achieve with the added time, probably in the shape of a future proposal or even a second referendum, which also looks to have risen up the likelihood scale. The PM is due to deliver a statement on the government’s next Brexit steps today. Following this, Parliament will hold a full day of debate on her plans on Tuesday 29 January and there will no doubt be plenty of wrangling over the various amendments that will be proposed through the course of next week. Note that EU financial councillors are meeting this week, but Brussels is not likely to be debating the next steps (bar contingency planning) on Brexit, until the UK has made its next move.
US this week
A look stateside shows another chaotic political story playing out with the (partial) government shutdown in its 27th day. It remains to be seen whether Democratic House Speaker Nancy Pelosi’s move to spur the President into conceding in talks will succeed. She has written to President Trump asking him to either postpone the speech until the government reopens or deliver the text in writing, citing security concerns. Meanwhile some US (and Canadian) data releases continue to be postponed due to the shutdown, whilst the Federal Reserve will soon be meeting for its January gathering, absent a number of key data points. Note that the US week is a shortened one due to today’s holiday for Martin Luther King Jr Day.
Europe & ROTW this week
There is an ECB announcement and press conference due from Frankfurt on Thursday (24 Jan) lunchtime. Here a key question will be whether the ECB will sound notably more cautious on the economic outlook. On the data front, this week we will gain receipt of the ‘flash’ PMIs providing an update on whether Euro activity has found a better footing at the start of 2019. We will also receive the important Ifo report from Germany.
On the wider global stage, the annual Davos gathering is taking place from Tuesday, though we note that President Trump is not set to attend nor is the UK Prime Minister. Ahead of this, the IMF will publish its updates to the World Economic Outlook, with potential ramifications for risk sentiment. China Q4 GDP figures, due early Monday, will also be eyed closely as investors search for further clues on the extent of any slowdown in the Chinese economy.
Figures released overnight showed GDP growth slowing in the fourth quarter to 6.4% y/y, in line with market expectations, down from 6.5% in Q3. Over the full calendar year 2018, this meant GDP growth was recorded at 6.6%, down from 6.8% in 2017. Much is being made in news stories of this being the slowest annual growth rate since 1990, though note that this was in line with China’s growth objective set out earlier in the year. Furthermore, some reassurance comes from the December figures which, if anything point to the final quarter of 2018 closing off on a slightly more solid note. Indeed, we note that industrial production was recorded at 5.7% y/y in December, up from 5.4% in November, beating the 5.3% consensus. Furthermore, China has continued to announce a host of supportive measures for the economy over recent weeks, most recently in the shape of additional tax cuts.