Parliament to reconvene this morning

The proroguing or suspension of Parliament by the Queen on the advice of Boris Johnson has been found by the High Court in London to be illegal. The Speaker of the House of Commons has confirmed that the House of Commons will reconvene at 11.30 am this morning.

While on the surface this appears to be little more than a symbolic gesture since Political Party Conferences will continue to take place, the underlying inference of the decision could resound throughout UK political procedure for a generation.

In normal circumstances, although the current situation is far from normal, the Opposition would call upon the Prime Minister to resign, which they already have done, then, failing that, they would call for a vote of no confidence in the Government. Since the Government no longer has a majority, the motion of no-confidence would most likely succeed, leading to a General Election.

However, since the Opposition Parties do not want to hold an election prior to ensuring that a no-deal Brexit is firmly off the table there is a rather odd impasse developing.

The Prime Minister has vowed to accept the High Court’s ruling, but this is a story that is set to run and run.
The pound took the decision in its stride, rallying a little as, on balance, the decision took a no-deal Brexit further into the distance. It reached a high of 1.2504 versus the dollar, having fallen earlier in the day as concerns over the Irish Backstop re-emerged.

The outlook for Sterling remains clouded by Brexit in the medium to long term since it remains the base case that the UK will leave the EU at some point and that is considered to be a significant risk to the economy whether the departure is with or without a deal.

It is virtually impossible to discern what the next act will be in this long-running saga but there are sure to be further twists and turns before October 31st.

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News of plans for Trump’s impeachment emerge

Late last evening, news emerged of plans to launch an impeachment enquiry into President Trump’s relationship with Ukraine. The charge is that Trump asked for political help from Ukraine. The President denies the charge although he admits discussing his likely Presidential opponent Joe Biden with the Ukrainian President.

It is hard at the present time to discern just how much effect this will have on the dollar although such uncertainty would generally trigger a selloff for the currency.

So far there has been little reaction from the financial markets with the dollar index trading in a narrow range overnight. Yesterday, it fell to a low of 98.29, closing at 98.33.

Earlier in the day, weaker than expected consumer confidence data had set the dollar on the backfoot. Fears of a prolonged trade war with China dented confidence although the full effect of the recent rate cuts is yet to be felt.

The Speaker of the House of Representatives, Nancy Pelosi, announced at a press conference held at 9.00 pm UK time last evening that formal investigations into the President’s impeachment would be started in the coming days.

While the procedure may be extremely damaging for economic confidence, such is the safe-haven status of the dollar it may not be massively affected even if Trump receives the ultimate sanction. No serving President has ever been impeached although given the unorthodoxy of Trumps administration it may be a fitting end to this Presidency.

German data continues to drive the Eurozone

Had Monday not happened, yesterday may have been a relatively positive day for the Eurozone. The recent perception that the economy is bottoming out was shattered by appallingly weak activity data from Germany that was released on Monday.

Yesterday’s IFO survey of German business, while weak, would probably have been interpreted as continuing the trend without Monday’s bombshell.

The current assessment of the economy actually rose this month although expectations and the business climate both fell but only marginally.

Given the recent rumours and this week’s German data, it may be that the Bundesbank and German Finance Ministry could be close to hatching a plan that would “break ranks” with Brussels, breach the growth and stability pact, in spirit if not in actuality, and provide a boost to both domestic activity and the wider Eurozone.

It may be considered a “Hail Mary” ploy but the region is fast running out of options.

The negotiations that will set the budget for the next five years will have to be postponed since the EU Summit which will take place in the middle of next month will be taken up almost exclusively by Brexit negotiations.
The euro managed to retrieve the 1.10 level versus a weakening dollar late in the day. It reached a high of 1.1025, closing at 1.1020, although its visit to such rarefied air may be short-lived.