Johnson won’t allow Brussels to gain the upper hand

The pound came under significant pressure yesterday as UK Prime Minister Boris Johnson laid out his plans for the upcoming trade negotiations with the EU.

Johnson was clear that he expects the UK to agree a deal with Brussels which is like the deal that the EU has with Canada.

The Canadian model officially called the Comprehensive Economic and Trade Agreement (CETA) provides a framework for relations between Brussels and Ottawa across an entire spectrum of trade and other economic factors the main details of which are the removal of most, but not all, tariffs and agreement on quotas of certain commodities. What it doesn’t do is remove border checks or provide any agreement on the treatment of services.

Services are likely to be a thorny subject and is the one significant area in which the UK has the upper hand. Frankfurt and Paris jealously regard London’s dominance in the financial services sector and will no doubt pressure their negotiators to try to wrest some business away from London.

Michel Barnier, the Chief EU Negotiator said in a speech yesterday that the more compromise the UK expects the more it will cost it.

Johnson said at a conference attended by the Ambassadors of most EU members and other UK trading partners that the EU would not agree to any deal that includes the adoption of EU rules and this raised the spectre of a no deal departure this December.

Johnsons tough stance set the pound on a path lower and it fell to a low of 1.2983 and it closed at 1.2992, having fallen close to 1.5% on the day.

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Trump to deliver a tub-thumping State of the Union

President Trump will deliver what some hope and others fear could be his final State of the Union speech later today. In this address, the President traditionally sets out what has been achieved over the past year and outlines an agenda for the coming one.

In an election year it can turn into a campaign rallying cry but in Trump’s case such a ploy would be hard to distinguish.

Trump appears to be constantly campaigning. This could be a measure of his insecurity in that he constantly feels the need to garner acceptance, but it is more likely that he enjoys doing what he is clearly good at. He consistently paints with a broad brush. Trump is not a details man; he is used to agreeing the main details of any deal or agreement and leaving the dotting of the i’s and crossing of the t’s to others.

He may encroach upon the territory of the Fed and Treasury, accepting China’s efforts to be less controlling of its currency while accusing Switzerland of being a manipulator. Trump’s support of Israel demands that he doesn’t accuse Israelis of manipulating the Shekel despite the open and brazen purchasing of foreign currency by the Bank of Israel to weaken the Shekel.

He seems to have reached an uneasy agreement with Fed Chairman Jerome Powell as he has been less critical since Powell stood up to him over rate cuts, did things his own way, and was eventually proved to be correct.Powell is a far better Chairman than the market first imagined he would be..

The dollar retains its safe-haven bid tone despite concerns over this week’s employment report. The most recent estimates put the headline and +125k but the fact remains that it is virtually impossible to predict the outcome with any degree of confidence.

Yesterday, the dollar index rose to a high of 97.89, closing at 97.82. 98.20 is likely to bring a degree of resistance to any further gains this week as traders sit on their hands ahead of the NFP data.

Green shoots finding it hard to break the surface

It is beginning to become difficult to find anyone who feels that the EU economic winter is about to see a thaw. Just how long the ice age will continue is anybody’s guess but with activity data in a tortoise and hare race with confidence reports it may be some time before the two are aligned.

The first week of the month in the Eurozone is becoming well known for the week activity data is released. Although the U.S. employment report remains (for now) the dominant monthly data, on the other side of the pond, analysts await any improvement in activity with bated breath.

The Markit bulletin of economic activity for the entire region as well as individual states was released yesterday. It continues to predict a bottoming out. It rose marginally from 47.8 to 47.9. At this rate of improvement, it will be many months until expansion returns.

Individual nation data showed that Italy’s performance improved the most, France is (just about) expanding and Germany is starting to see a slight improvement.

Producer prices will be released this morning. Although the market expects a fall, it won’t be as pronounced as in November. Data which is backward looking is becoming less and less important. This is a natural development in an economy that is emerging from anything close to a recession. Leading indicators take on a far more prominent role as confidence picks up ahead of activity. The current state of the Eurozone economy is proving to be a classic case.

Yesterday, the euro drifted lower as the dollar retained its safe-have bid tone. It fell to a low of 1.0995, closing at 1.1058