Good morning,

GBP – Brexit bullies waiting for May 

Parliament returns from recess this week as the nation’s school children head back to the classroom. If parliament were a school then Boris Johnson, David Davis and other prominent Brexiteers are waiting for PM Theresa May by the front gates and are looking forward to knocking her Chequers project straight out of her hands and into the nearest puddle. Sterling weakness in the Asian session is being attributed to Boris Johnson’s latest column in the Telegraph, further arguing that the Chequers plan is ‘not Brexit’.

With parliament returning the weekend’s papers once again will become the battleground for opposing Brexit views. While the Prime Minister chose The Telegraph to rule out a second referendum on Brexit, writing that another vote “would be a gross betrayal of our democracy,” the rebels are said by The Times to have joined a grassroots campaign called “Stand Up 4 Brexit” that pledges to tear up all of the negotiations that have already taken place.

We start the week with sterling still below the 1.30 mark against the USD and stuck around 1.11 against the European single currency. Ironically enough, sterling sentiment has started to pick up since Michel Barnier’s speech last week noted an ‘unprecedented’ deal for the UK. That momentum could easily be continued by stronger PMI data through the week although the political back and forth will act as a depressant once again.

The manufacturing PMI is due at 09.30, last month’s number was characterised by slower growth with export orders unable to make up a slowing of domestic demand. Of course, since this report the Bank of England has raised interest rates, so we will wait and see what manufacturing sector companies initially made of the increase in borrowing costs.

EUR – The Italian (deficit) job

Italy is very much in focus this week as the Italian government is set to publish its latest tax and spending plans and will, in all likelihood, breach the EU’s rule on deficit as a proportion of its GDP. That ratio set by the EU is currently set at 3%. Something will have to give in Italy in the next week and that is either the EU’s rules or some of the promises made by politicians in the recent election.

With this in mind, and obviously data depending, this week could see the euro under some pressure as the currency re-correlates with the performance of Italian debt against that of the US. The outlook for Italian debt – the first step to a ratings cut – was downgraded by Fitch on Friday evening.

European manufacturing PMIs are also due this morning. Italy’s number is due at 08.45, France at 08.50, Germany at 08.55, and the Eurozone wide measure at 09.00.

USD – Naff all on NAFTA

There was no settlement on the North American Free Trade Agreement between the US and Canada on Friday and the USD has pushed higher since the news. Similarly, the USD is also taking a boost from the belief that a fresh set of tariffs could be imposed on China by the end of the week. President Trump has said that another $200bn of tariffs had been plotted. News that the President will not attend two major summits in Asia in November has also stoked concerns that the calm chatter around changes in NAFTA will not be replicated in Asia.

The US markets are closed today for the Labor Day Weekend celebrations. That may not be enough to prevent the USD from crashing higher against emerging markets today however with Turkish inflation data, a new spending plan in Argentina and Chinese political positioning following another month of weak data.

Have a great day