Prime Minister’s isolation almost complete

The departure of leading figures from the Cabinet over the past few months was always going to weaken the Prime Minister’s position as she enters the final week of a tortuous campaign to obtain support for the Brexit agreement.

It has seemed that the harder she has tried, the more the tide turned against her and the more isolated she has become. Without senior figures to back her up it has been like a football team playing in the Cup Final and only having the youth team to pick from.

A general lack of credibility is now pervading the entire Brexit process and Mrs. May faces certain defeat when the vote takes place next week.

It is a telling indictment that there is not even an agreement over the terms of the televised debate between the Leaders next weekend. Indeed, even the participants in the debate are being questioned. The debate will not be around the fundamentals of leave versus remain or the need for a second referendum. It will simply be about a deal which is, in any case, about to be consigned to the scrapheap. Once this week is over and the seemingly endless “death by a thousand cuts” is complete, more questions than answers will be thrown up.

The most obvious is: what happens next over Brexit? Will Mrs. May “fall on her sword”? Can the Opposition gain enough votes to pass a lack of confidence motion through Parliament? If they can and a General Election ensues, can it solve anything over Brexit?

The pound has, so far, remained immune to the final throes of the passage of the Bill. This will be the lull before the storm as traders prepare for a tumultuous week next week. Over the past week, the pound traded in a relatively narrow range between 1.2864 and 1.2725. Traders will now be positioned as the wish for the outcome they envisage and, however unlikely a positive outcome is, the risk is clearly to the upside given how the market is positioned.

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The end of the phony war?

In trade terms, China and the U.S. need each other. They are both going through a revolution of sorts; China continues to emerge as the world’s factory while the U.S., if anything, continues to be the world’s consumer, but is no longer a producer. China needs a willing and secure recipient for its trade surplus and the U.S. needs to borrow to fund its insatiable appetite for consumer goods.

The U.S. Treasury produces a twice-yearly report on the countries it deems to be “currency manipulators”. These are the countries who deliberately weaken their currencies, using monetary policy. China has been top of that list for some time and has deserved its place given the pace of growth and the general strength of its economy while officially “pegging” its currency.

Others on the list include Japan and, rather oddly, Germany but that is a story for another day.

President Trump, rather than simply admonish China as other Presidents have done, accepting the relationship between the two nations no matter how toxic, decided that further action was required. He enacted tariffs on Chinese goods entering the U.S. That act that was simply mirrored by Beijing, showing China could now compete with Washington on the global stage.

Over the weekend, at the G20 meeting in Buenos Aires, the two Presidents agreed that the futile exchange of tit for tat measures had achieved nothing and both considered subscribing to new WTO regulations.

The dollar index which has been close to eighteen-month highs has faltered a little as risk appetite improved. It has opened overnight in Asia at 96.83 having reached 97.31 last week.

European malaise grows

The pictures emerging from Paris over the weekend of the “Gilets Jaunes” riots in Paris are yet another symbol of the seriousness of the issues beginning to engulf the European Union.

Emmanuel Macron, the French President, and Angela Merkel, the German Chancellor, have several things in common. They are both heavily invested in the further integration of Europe but both find themselves under severe pressure over domestic policy. In modern-day Germany, the people tend to use the ballot box to express their displeasure while in France they prefer the more traditional methods of an “old-fashioned riot”.

A highly significant development from this weekend’s riot was the seeming sympathy of the emergency services for those they were trying to police.

With Brexit still a major issue for Brussels, the Italian Budget issue still not resolved, and continued uproar and disagreement over an EU wide immigration policy, the political and social issues facing the region are being matched by the state of the economy.

Manufacturing indices are released today not just for the Eurozone but for the UK and U.S as well. The UK and Eurozone, while remaining in positive territory, are likely to show a fall towards recessionary levels, while the U.S. continues, for now, to show positive activity.

The single currency has been in a downtrend for the whole of the second half of the year and with little to support it going forward, the fall towards 1.1000 continues slowed only by the dollar’s gyrations.

On Friday the euro closed at 1.1305 although it has rallied overnight to 1.1370 as the dollar has weakened following the U.S./China agreement on trade.