One week to do three year’s work

With a week to go until the EU summit at which the EU Heads of State were expected to ratify an agreement between Brussels and the UK, the President of the EU Commission, Jean-Claude Junker spoke to the EU Parliament and placed the reasons why a deal has not yet been completed firmly at Boris Johnson’s door.

He said that he did not wish to enter the “blame game”, which he said London had initiated, which appeared to contradict the point he was trying to make.

It will not have been lost on those trying to negotiate on behalf of the UK that the EU understands the UK cannot, legally, leave the EU without a deal in place. This has considerably weakened the negotiating position that the Prime Minister is managing. All Brussels must do is keep turning down proposals and the UK can remain indefinitely. This may or not be the policy of the main opposition party, since they have yet to declare their position.

However, if Johnson is forced to write to Brussels to formally request an extension to January 31st, a General Election should quickly follow. The outcome of that Election remains in the balance but if it is fought on a single policy, Brexit, the Labour Party’s fence-sitting may count against them. It is rumoured that Brussels will only agree to an extension if the UK either holds an election or a fresh referendum.

It was announced yesterday that the House of Commons will sit on a Saturday for the first time in forty years on October 19th to debate the outcome of the EU Summit. Should no deal be concluded, Johnson will be under pressure to act on the “Benn Law” and write to Brussels asking for an extension. Just how he plans to escape that necessity remains to be seen. Otherwise, he may, in his own words, “be found dead in a ditch”.

Yesterday, the pound remained under pressure in a new lower range. It traded down to 1.2197, closing at 1.2208.

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Dollar treads water as Powell calls Fed policy a success

The dollar index closed yesterday at 99.12, barely changed from the previous day. Fed Chairman Jerome Powell spoke to a group of business leaders and was at pains to confirm to them, and possibly himself, that the Fed’s quasi reactive policy is proving to be correct. It seems that he could be in a minority since there are dissenting voices on both sides of the argument.

It may be that since as many commentators are calling for further cuts as continue to believe that the Fed has already done enough that their policy is perfectly balancing the argument. Only time (and this month’s data releases) will tell, but so far, a cut at this month’s meeting is something like 50/50.

There seems to be a constant stream of rumours regarding the status of trade talks between Beijing and Washington with media being regularly guided towards a view that it is Beijing that is keener for the issue to be settled. It is far more likely that this is propaganda than a genuine “state of play”.

The White House continues to try to ignore the impeachment proceedings against the President with Trump banning his Ambassador to the EU from testifying. This prompted House Leader Nancy Pelosi to accuse him of considering himself above the law. This is not the first time such an accusation has been levelled at him.

The ever-narrower range that the dollar is trading within is likely to remain until there is a clearer picture of the direction the economy is taking. While the Fed insists it doesn’t react to a single month’s data, this moths activity and confidence numbers will be closely inspected by the market, if not the FOMC.

Draghi to make his farewell address

Mario Draghi has been labelled several things during his tenure as President of the European Central bank. He will be best remembered for three things: First, that he never managed to find himself in a position to hike interest rates, second, that he vowed to defend the single currency from each and every threat (despite never having felt the need to hike rates) and third that he has managed to not be succeeded by a German.

That Christine Lagarde, not Jens Weidmann will succeed Sr. Draghi has not been greeted with the dismay it would have attracted two or three years ago since French “je ne sais quoi” and not Teutonic pragmatism is what is now needed to kickstart to Eurozone economy.

Sr. Draghi will make one of his final addresses this week and he is sure to provide some advice on how the finances of the region should be managed following his departure. When anyone is listing his achievements, they are sure to mention that he managed to serve his full term without having to manage a major bank failure despite the capital position of several being in critical condition.

Allowing bad debts to be written off over eight years, not the industry standard six has saved many from going under.

The timing of the release of the Q3 GDP data for the region could be critical. It is likely to be Draghi’s final act to confirm the region is in recession by the technical measure of two consecutive quarters of contraction (negative growth). That will leave Ms Lagarde with a “clean slate” and enable her to be hailed as not only the first female ECB President but also the first in many years to be able to hike rates (or possibly preside over the demise of the entire experiment).

Yesterday, the euro trod water in keeping with the dollar. It traded between 1.0989 and 1.0954, closing at 1.0970