Johnson: UK Leaving EU on 31/10, “no ifs, no buts”

Boris Johnson called an emergency meeting of his Cabinet yesterday as Parliament prepared to return. The furore concerning Johnson’s decision to request the Queen to suspend Parliament from next week until mid-October continues. The fact that Parliament would have been in recess anyway due to it being “conference season” has been ignored by those opposing Johnsons actions.

Johnson, speaking outside No.10 Downing Street last evening, said in a positive speech that the UK is leaving the EU on 31st October “no ifs, no buts.”. This has led to a belief that he will call a General Election if he is defeated in the House of Commons this week.

There had been rumours for some time that the Prime Minister is preparing to call a snap General Election to try to ensure a majority in Parliament, but this is, of course, an extremely risky course of action.

There is no chance of Johnson repeating Theresa May’s mistake of calling an election without being categorically certain of the result, although he also confirmed that he wouldn’t be going to Brussels to ask for an extension until 31st January. That is what MP’s will debate later today. The bill before Parliament will demand that the Government ask Brussels for an extension if a deal is not agreed by October 17th.

The threat remains that any rebel Government MP who votes with the opposition risks being deselected prior to any election campaign.

Meanwhile, talks are still taking place behind the scenes between London and Brussels to try to reach an agreement regarding the most contentious parts of the Withdrawal Agreement. Johnson believes that it is critical that no-deal remains an option believing that the UK is at a significant disadvantage should Brussels know that a deal must be reached.

The pound fell to a low of 1.2036 versus the dollar, closing at 1.2065 as traders fear an election almost as much as a no-deal Brexit. The significant 1.2000 level looks to be under threat now as the whole Brexit issue reaches a climax.

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Euro fall continues, Trump to blame?

In his haste to blame every other nation for his economic failings, the U.S. President is inadvertently fuelling the flames of the fall in the single currency. Rumours of a move by the U.S. to devalue the dollar by intervening have had the counter-intuitive effect of strengthening the dollar since it is a sign that the dollar won’t fall of its own volition.

Yesterday, PMI data was published by both Germany and the Eurozone. In Germany, the Eurozone’s largest economy, activity fell again which may hasten the Bundestag to approve tax cuts to boost the economy. Manufacturing activity fell from 43.6 in July to 43.5 in August.

Similar data was released for the entire region and reinforced the view that the economy is bottoming out despite the issues faced by Germany. Activity in August was unchanged at 47.00 as expected by analysts.
There are still another couple of weeks until the ECB Governing Council meets again. It is likely that the single currency will remain under pressure, although any measures announced by the Central Bank will hardly be designed to strengthen the currency.

One further issue that is not yet settled is the political situation in Italy. Matteo Salvini, the outgoing Interior Minister, continues to “stir the pot” of discontent between the “new” coalition partners from Five Star and the Democratic Party. Salvini claims that the Democrats will allow the repeal of immigration limiting legislation which led to the move towards a populist/nationalist coalition fifteen months ago.

The President will likely call an election should the two parties fail to agree on all outstanding issues this week.

The euro fell to 1.0957, closing at 1.0965 yesterday as the psychologically important 1.1000 level was breached for the first time in close to two and a half years.

Holiday quietened dollar rallies

The dollar continued its recent rally yesterday despite the U.S. being on a Public Holiday to observe Labor Day. The tone of strength for the greenback stems from the weakness of other currencies and its safe-haven status.
With President Trump railing against both the dollar’s strength and the weakness of other G7 currencies, there is a real possibility that he will do something to change the entire dynamic. The dollar index is now well above the 99 level, its highest since May 2017.

Today’s manufacturing activity release will be in marked contrast to similar data from the UK and Eurozone. While a reading of 50.5 is hardly stellar, representing activity that is barely growing, it shows that despite the dollar’s strength and a global slowdown there is still growth in the U.S. economy.

This week’s main event is the employment report for August, to be released on Friday. There has been a gradual slackening off of both expectations and the headline number itself over the past few months as a sense of realism has developed. This month is no exception, with anything above 150k new jobs being positive.

With less than fifteen months to go until the 2020 Presidential election, President Trump remains confident of winning a second term, but a slowing economy and an in-depth review of his record may make the result a lot closer than had been likely a year ago.

The dollar index reached a high of 99.13 yesterday, closing at 99.04. Overnight it has continued to rally, reaching 99.33.