Good morning! To gear up for the week ahead, let’s first recap the raft of UK data we had out last week. CPI inflation, labour market data and retail sales were all released. Inflation held steady at 3%, just missing expectations to the downside. The unemployment rate was unchanged from its 42-year low of 4.3% and headline earnings growth eased back to 2.2% from 2.3% the previous month. Retail sales were a mixed bag coming in with 0.3% up m/m in October following a downwardly revised 0.7% contraction in September.

This morning we awoke to news from Germany that Chancellor Angela Merkel says her efforts to form a three-way coalition have failed. This has raised questions about whether Germany might be headed for further elections and has sent the Euro lower; against the dollar it fell from around $1.1800 late yesterday to around $1.1740 currently. The collapse of talks came after the Free Democratic Party announced that they were pulling out of talks that they had been holding with Merkel’s Conservative bloc and the Green party. Merkel now needs to try and find a way to bring the FDP back to the coalition talks or to try again to renew her coalition deal with the Social Democrats, although the SPD has been clear it is not willing to do so. If these options fail Merkel is either faced with attempting to move forward as a minority government or to force a new election. She is set to brief reporters at midday UK time.

The mess in Zimbabwe continues to drag on with Robert Mugabe refusing to announce his resignation. The man who has presided over the country for almost forty years was told to resign as president or face impeachment. There was widespread speculation that he would do exactly this after he called for a news conference yesterday on state television. Instead he mentioned nothing of the sort and called on Zimbabwe 'to move forward'. He has already been removed from his party and has been given a deadline of 12pm local time today (10am UK time) to stand down before impeachment proceedings begin.

The highlight for the week ahead is the UK Budget, which will be unveiled on Wednesday after the customary Prime Minister’s questions. If it feels like we’ve only just had one, that’s because it was announced at last year’s Autumn Statement that the Budget would be moved from the spring to the autumn. Therefore, it has necessitated two in 2017 to ensure that a Budget takes place ahead of the start of the 2018/19 fiscal year. It will be Phillip Hammond’s second budget and he has relatively little wiggle room to deliver a giveaway. He is facing considerable pressure to deliver a Budget to deal with the more urgent political pressure points to try and create a turn of fortune for PM May and her Tories, without throwing fiscal consideration right out of the window.

The day ahead

Today is a quiet day on the data front with speakers taking the attention. The Bank of England’s David Ramsden is giving a speech at King’s College London this evening and both the President and Vice-President of the ECB are due to speak this afternoon. UK public finance figures are out on Tuesday alongside the appearance of several members of the UK’s Monetary Policy Committee in front of the Treasury Select Committee. Both though are likely to play second fiddle to Chancellor Hammond’s Budget on Wednesday lunchtime. Euro area PMIs for November are due on Thursday and the second estimate of Q3 UK GDP is released then too.  

Thought of the day

This weekend’s football results threw up few surprises as the two Manchester clubs, Chelsea, Liverpool and of course Arsenal, were dominant in their victories against inferior opposition. It’s well known that Arsenal have been in decline for a number of years but can still raise their game against their bitter North London rivals, Tottenham Hotspur. Arsenal’s front three (Ozil, Sanchez & Lacazette), nicknamed the ‘golden triangle’ provided a glimpse of what life could be like for fans if they remained at Arsenal. However, with Sanchez and Ozil out of contract in the summer fans are not holding their breath. In the FX market, securing long term hedging contracts could provide your business with a competitive edge. For example, if you had bought USDs on an 18-month forward just before the Brexit referendum you could have achieved close to 1.5000! To discuss long-term forecasts and ways to manage your risk, please do not hesitate to contact your Investec dealer on 0800 055 6339.