Media reports this morning suggest that the UK government has reached an agreement-in-principle with the EU over its future financial obligations to the bloc following its planned departure in March 2019. Prime Minister Theresa May is expected to present the final settlement over dinner with European Commission President Jean-Claude Juncker and Chief Negotiator Michel Barnier on Monday. This would remove the biggest hurdles that that had prevented Brexit talks progressing to future trade arrangements, however, the issue on the Irish border remains.

The markets have welcomed this news positively with Sterling recovering back to 1.3400 and 1.1300 vs the dollar and euro this morning. This marks a huge turnaround for the pound after the Bank of England Governor, Mark Carney, had warned of potential Brexit “pain”. Delving a little into the detail, it is understood the final divorce bill will be in the range of €45bn and €55bn with the breakthrough likely to ease jittery markets concerned that the bill was becoming a major sticking point between the two sides. 

In the US, the incoming Fed Chair, Jerome Powell, had his confirmation hearing with the Senate Banking Committee yesterday as part of the approval process to succeed Janet Yellen in February. In his speech, he largely focussed on continuity but comments relating to potential regulatory easing on the financial sector are what seemed to draw most attention; benefiting both the dollar and US stocks. On US interest rates, he noted the case for a December rate hike is “coming together” and reiterated the expectation that “interest rates will rise somewhat further and the size of our balance sheet to gradually shrink”. 

Elsewhere in the US, a close run vote by the Senate Budget Committee means the tax bill will now be sent for debate in the Senate. As mentioned earlier this week, a tax bill would be a huge coup for the President.  

The day ahead

Looking ahead today, we begin with mortgage approval data in the UK before a raft of European confidence data in the zone. Central bankers dominate proceedings this afternoon with Mark Carney speaking at a Financial Stability Board event at 2pm before Janet Yellen appears before the Joint economic committee at 3pm. Bank of England Deputy Governor Sir Dave Ramsden is also participating in a panel at 2:45pm.

Thought of the day

Today is the birthday of C.S. Lewis, the author of the epic series of fantasy novels The Chronicles of Narnia. I’m sure many people reading this will have read at least one of the books and perhaps the most diehard fans will have made it through all seven. How many children have wished they could step through a wardrobe into a fantasy world? The books take inspiration from a number of different sources, including traditional Christian themes: Lewis described Aslan, the eponymous great lion of the Lion, the Witch and the Wardrobe, as of how Christ may have appeared in an alternative reality. Back to reality (although it may seem like a fantasy!) and we have awoken this morning to GBP/USD trading at 1.34 and GBP/EUR at 1.13. Will we see this sterling rally sustained in the lead up to Christmas? Call your Investec dealer today on 0800 055 6339 to discuss strategies to take advantage of this move.