Johnson demands Dec.12 Election

UK Prime Minister Boris Johnson made what can at best be considered a lukewarm offer to Parliament as he awaits confirmation from Brussels of how long an extension to the Brexit deadline they will agree to.

He offered to allow MPs longer to debate the Withdrawal Bill if they agree to hold General Election on December 12th. He said that the time has come for the current Parliament, which has become “unfit for purpose” to be dissolved and the UK population should be allowed to have its say.

In truth, Johnson has no bargaining power at all since due to the fixed-term Parliament act, the Opposition can hold Johnson hostage for as long as they see fit. However, in Johnson’s own words, it would be “immoral beyond belief” for the Labour Party, having spent the past months baying for an election, to turn down the opportunity to go to the people for the third time.

Donald Tusk, the EU Council President has recommended to the 27 Heads of Government to allow a three-month extension although what this will do for the UK is hard to quantify since the deal approved recently will remain in its current form as Brussels will not allow any “tweaks” no matter what Parliament demands.

The offer of an election has been put to the Opposition and will be debated in Parliament on Monday. It remains to be seen just what the outcome will be, but it is now reasonably safe to assume that the UK willnotbe leaving the EU on 31st October.

The pound reacted in muted fashion to the day’s events, consolidating versus the dollar and making a high of 1.29560 and closing at 1.2851

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Activity data muddies the waters.

While activity data is not such a leading indicator in the U.S. as it is in the Eurozone, the market is prepared to cling onto any piece of data which gives an insight into what the FOMC may do at its meeting next week.

Manufacturing activity across the U.S. remains in expansion in contrast to the Eurozone and this is a prime factor that will add support for the dollar in the medium term.

With manufacturing activity rising marginally from 51.1 in September to 51.7 this month contrasting with weaker corporate results, which are restrospective, the confused state of the market remains.

It is a year this month since U.S. Vice -President Mike Pence made a speech in which he was highly critical of Chinese trade policy. This was the catalyst for the latest tensions that led to the ongoing talks aimed at diffusing the mistrust between Washington and Beijing. Pence is again due to speak imminently, and it is likely that he will be more circumspect in his comments.

The dollar is being held in suspense as it awaits the FOMC meeting. It is often said, but this time it really is too close to call, with a different factor contradicting the previous one being released seemingly almost daily.

The dollar index remains supported at 97.20 and is flirting with that level as the possibility of a rate cut remains. It made a low of 97.28 yesterday, closing at 97.67

ECB leaves rates unchanged as Draghi chairs final meeting

The ECB remains almost completely impotent having played all its cards to no avail and failing to arrest the slide in the Eurozone economy.

Mario Draghi who will leave his post as ECB President at the end of the month to be replaced by Christine Lagarde will leave the post with a whimper rather than a bang. In fact, it will be very similar to his low-key entrance to the role although he definitely left his mark on the Central Bank.

Activity data was release for both Germany and the wider Eurozone yesterday and as had been widely feared (expected) it was again weaker than market expectation.

In Germany, activity rose from 48.5 to 48.6 although this was by less than the market had expected. In the wider region, the composite index of manufacturing and services combined remain in expansion (just) rising from 51.6 to 51.8 versus expectation of a rise to 51.9.

It is obviously too early to call a bottom for the economy especially as we are about to enter the slowest quarter for economic activi9ty where the consumer is expected to “take up the slack”.

There is a degree of expectation that the “new broom will sweep clean “at the ECB but for now, the stimulus cupboard is bare. We will have to wait until Ms Lagarde is installed until there can be any discussion of structural changes.

For now, the euro is marking time, barely reacting to the ECB’s latest non-event. It ranged between 1.1163 and 1.1092 yesterday, closing at 1.1103.