Johnson’s fight just beginning

The UK and EU have agreed to a Brexit deal at the 11th hour as both sides saw the merit in a compromise. Despite vowing not to reopen negotiations, it became clear to Brussels that the UK’s determination to depart could have led to no-deal although the UK Parliament outlawed had such an action.

Boris Johnson’s triumph has been overshadowed by opposition MPs already saying they will vote against the deal when Parliament meets in extraordinary session tomorrow. It will be the first time in forty years that the House of Commons has met on a Saturday.

The Democratic Unionist Party from Northern Ireland has said they cannot support the deal as it creates a separation between them and the mainland UK although here will be no hard border between the two parts of the island of Ireland. Johnson says that the entire UK will be able to take advantage of the benefits of Brexit although Northern Ireland will still be subject to certain restrictions.

The major opposition parties have said they will vote against the deal although their reasons appear to be spurious at best.

Tomorrow’s debate in Parliament followed by a vote on the proposed deal is on a knife-edge with both sides saying they will win enough support. It remains to be seen what will happen should the deal be voted down. It is by no means certain that Brussels would agree to a further extension even if asked to do so.

For Boris Johnson, the next 24 hours will define his career. He may be the man who kept his promise, or he could fall by the wayside, another victim of the Brexit malaise.

Sterling gyrated wildly yesterday as rumour and counter rumour came from Brussels. It reached a high of 1.2990 versus the dollar, closing at 1.2890. If tomorrows debate goes against the Government, the early part of next week will see extreme volatility as the pound could give back most of this week’s gains.

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U.S. Has Decided to Broker a Solution with Turkey

Mike Pence, the U.S. Vice-President met with the Turkish President yesterday and managed to persuade him to halt his country’s advance into Northern Syria, ostensibly to allow Kurdish civilians a chance to flee the fighting.

Whether this will be a permanent halt to hostilities remains to be seen but, the U.S. has at least decided to broker a solution even though Trump commented recently that the incursion is “nothing to do with the U.S.” shows a degree of common sense.

The dollar remains in a corrective phase. It continues to be driven by the market’s view of global risk appetite and, as such, the temporary solution to the issue of Northern Syria is seen as positive for risk.

However, closer to home, the greenback’s primary driver is the degree to which the economy is slowing. There is no consensus yet regarding the upcoming FOMC meeting with as many commentators favouring another cut as those believing that the economy’s “soft spot” is temporary. Recent data releases have been inconclusive going right back to the September employment report.

One-piece to the jigsaw that the FOMC will be aware of that the market won’t is an advance guide to the October employment report since the meeting is just a day or two before its official release. This may have a bearing on their deliberations but is unlikely to be the deciding factor.

The dollar index continues its retreat from recent highs. Yesterday, it fell to a low of 97.49, closing at 97.59

Has Eurozone found a floor?

There appears to be a growing perception that economic activity in the Eurozone is bottoming out. Analysts will be aware that this is not the first time during the current prolonged slowdown that such hopes have been raised and there is certainly nothing more than anecdotal evidence that better data is likely to be seen.

It may be that they believe activity cannot continue to fall indefinitely irrespective of what stimulus is put in place.

The market’s expectation that Germany is likely to go it alone has been overshadowed to a certain extent by the Brexit negotiations but once the dust settles, it is probable that some announcements will be forthcoming from Berlin.

Next week will be crucial for the Eurozone with activity data for manufacturing and services being released. While the current sense of optimism prevails, it could be crushed in an instant if the data is as bad as traders fears it could be.

There are fears that German manufacturing output could fall below 40 which would be an unmitigated disaster. However, that would spur a stimulus package although even that could be a double-edged sword for the longevity of the Eurozone.

The sense of a bottoming out for the region doesn’t appear to apply yet to Germany. A report which is close to last months 45 may see the single currency manage to hold onto recent gains versus a weaker dollar.

Yesterday, it rose to a high of 1.1140, closing at 1.1123. This was the first close above 1.11 since late August