Inching Closer to a Christmas Election

Sterling firms as Brussels accepts Brexit delay, ahead of a second vote on an early election; while risk appetite is buoyed by upbeat trade headlines

Previous Day's Market Highlights

So, a Halloween Brexit is now off the cards; but a Christmas general election to replace it isn’t yet a done deal. 

Monday saw EU27 leaders announce the agreement of a 'flextension' (another new bit of Brexit jargon), pushing back the UK's exit date until 31st January 2020. However, the terms of the extension allow the UK to leave the EU on either 1st December or 1st January 2020 should the Withdrawal Agreement be fully ratified beforehand - hence the 'flex' element of the extension. Nonetheless, with PM Johnson writing to EU Council President Tusk to "confirm the UK's formal agreement" with the delay, the 'do or die' pledge of leaving on 31st October is now, to paraphrase a certain someone, dead in a ditch.

After an extension was sewn up in Brussels, attention quickly shifted to Westminster, and the government's plans to hold an early general election. However, the government's motion, which would have paved the way for an election on 12th December, failed to achieve the two-thirds majority of MPs required under the Fixed-term Parliaments Act (FTPA), thus thwarting the conventional route to an early poll. However, the government quickly announced that they would be attempting to call an election via another means, namely by tabling a one-clause bill to set aside the provisions of the FTPA, and fix in law the election date as 12th December. Such a bill would require just a simple majority in Parliament, with the government enticing MPs to vote in favour of such a motion by announcing that the Withdrawal Agreement Bill (the legislation implementing the Brexit deal) will not be brought back before an election.

Despite the impending election, the announcement of a Brexit delay and avoidance of a no-deal departure at the end of October helped to support the pound. Sterling ended the day 0.35% higher against the dollar, and 0.2% higher against the euro, though remained within a familiar range against both.

Meanwhile, away from Brexit, risk appetite remained healthy, aided by a handful of upbeat trade comments from President Trump. The President indicated that the US were 'ahead of schedule' to sign the first phase of a US-China trade deal, with Trump expecting to sign the agreement at the APEC Meeting in Chile on 16th and 17th November. These optimistic comments saw both the Aussie and Kiwi dollars gain ground, adding 0.3% and 0.15% respectively. On the other hand, the safe-haven yen struggled, shedding just shy of 0.4%, falling to its worst levels against the dollar in 3 months.

Speaking of the greenback, lesser demand for safe-havens resulted in the dollar striking a softer tone, shedding around 0.1% against a basket of peers. The dollar was also pressured by apprehension ahead of Wednesday's likely FOMC rate cut, as well as a string of poorer than expected economic releases. Monday's releases included wholesale inventories, which declined at their fastest pace in 2 years; the Chicago Fed's national activity index, which fell to the lowest level since April; and the Dallas Fed's manufacturing index, which hit the weakest level since July. While all of the aforementioned points are lower-tier releases, the data feeds into the broader picture of a slowing US economy, likely pointing to Wednesday's Q3 GDP release being a touch softer than expected.

Elsewhere, the euro was rangebound, though ticked up by around 0.15% against a weaker dollar; while the Canadian dollar shed just over 0.1% as weaker oil prices weighed on the loonie.

Away from FX, equity markets gained ground on both sides of the Atlantic, buoyed by the optimistic trade news. In Europe, the Stoxx 600 closed 0.35% higher, while the US benchmark S&P 500 closed 0.6% higher, reaching a fresh record high. Finally, oil prices lost ground, with demand concerns outweighing the upbeat Sino-US news. Global benchmark Brent shed 0.6%, while US WTI crude settled 1.5% lower, both blends snapping 4-day winning streaks.

Currency Pairing 08:00 Today Vs 08:00 Yesterday Four-Week High Four-Week Low % Change
GBP/EUR 1.1590 1.1661 1.1086 4.93%
GBP/USD 1.2855 1.3012 1.2195 6.28%
EUR/USD 1.1090 1.1179 1.0879 2.68%
GBP/AUD 1.8755 1.9094 1.8076 5.33%
GBP/NZD 2.0195 2.0559 1.9311 6.07%
GBP/CAD 1.6785 1.7095 1.6191 5.29%

Today's Market Highlights

Once again, Brexit developments will remain in focus today, with Prime Minister Johnson set to continue his push for a December general election. The government are set to, today, table a one-line bill to bypass the FTPA and hold an election on 12th December, with MPs set to vote on all stages of the bill today. Such a bill would require just a simple majority of MPs to vote in favour in order to allow a Christmas election to take place, a somewhat easier task than yesterday's motion. Nonetheless, opposition parties remain key to the plan, due to the government not holding a majority; Labour, the Liberal Democrats and SNP have all indicated that they will scrutinise the bill before deciding which way to vote. As the Prime Minister continues to inch closer to an election, the balance of risks for the pound begins to increasingly tilt to the downside as uncertainties continue to mount ahead of a likely December poll.

On the data front, today's calendar is relatively light, with this morning's session seeing no notable releases from either the UK or eurozone. Across the pond, however, the calendar is a little busier, with October's consumer confidence index the primary focus. The index is expected to have modestly recovered from September's 3-month low, with expectations for a reading of 127.5, indicative of softer consumer spending in the coming months. September's pending home sales are also due from the US this afternoon, though are unlikely to result in significant volatility.

Overnight, the calendar remains busy, with third quarter CPI figures from Australia of most interest. Inflation is set to remain relatively sluggish down under, with prices expected to have increased by 0.5% QoQ, and 1.7% YoY. Such sluggish rates of inflation are likely to give the RBA little cause to alter their current easing bias, though further rate cuts are unlikely until early-2020. Furthermore, sub-forecast inflation readings will likely increase discussion of unconventional policies, such as QE, being introduced. Also overnight, Japan's September retail sales data is due, with market participants set to closely examine the release for any softness in consumer spending stemming from the recent increase in consumption tax.

Finally, turning to central banks, today marks the beginning of the FOMC's 2-day policy meeting, which is almost certain to result in a 3rd straight 25bps rate cut tomorrow evening. Meanwhile, today's speaking calendar is light, with only notoriously hawkish ECB Governing Council member, and Bundesbank President, Jens Weidmann set to make remarks.

Today's Economic Calendar

Time Currency Release Consensus Previous
14.00pm USD CB Consumer Confidence (Oct) 127.5 127.5
14.00pm USD Pending Home Sales (MoM - Sep) 0.5% 1.6%
23.50pm JPY Retail Trade (MoM - Sep) -0.2% 4.8%
00.30am (Weds) AUD CPI (YoY - Q3) 1.7% 1.6%
00.30am (Weds) AUD CPI (QoQ - Q3) 0.5% 0.6%