Good morning,
GBP: Florence and the Machine
Theresa May will give an ‘update’ on the stance and path of the UK’s negotiations with the EU today at 2.15pm UK time in the Italian city of Florence. The tightrope that she has to walk is to signal to her Brexiteer ministers and party members that she has not ceded ground and ‘sold out’ the leaver dream while also telling Europe of progress that will trigger the beginning of trade talks.
It has been widely trailed in the papers this morning that May will ask for a two year transition or ‘implementation’ period to prevent the prospects of a cliff-edge Brexit within March 2019 while also paying a ‘divorce’ payment of around £20bn.
GBP has rallied a little overnight and will likely stay bunched at current levels while we wait and see exactly what is within that speech and whether any clarification of what the Brexit end game looks like for the May government.
Korea: Just when you thought it had gone quiet
South Korean newswires are reporting this morning on a meeting with the North Korean Foreign Minister who attempted to clarify Kim Jong Un’s earlier warning of the “highest level of hard-line countermeasure in history” following threats from US President Trump could mean a hydrogen bomb detonation in the Pacific. The USD is a little weaker this morning as a result.
EUR: Merkel to win in Germany
The German election takes place this Sunday and, like most, we anticipate a clear win for Angela Merkel and her CDU party. We have always believed that the threat to Angela Merkel was rather overstated and while we see Merkel’s CDU/CSU party winning out in the end – on the basis of a ‘steady hand’ amidst issues of a continued Eurozone crisis, Brexit and growing Russian influence – it will be the AfD, the UKIP of German politics, who may be viewed as the ‘winners’ should they finally get representatives into the Bundestag. We doubt we will see much euro action at the open on Sunday.
The Day Ahead
The euro will be in the headlights this morning as we await the run of preliminary PMIs from France, Germany and the wider Eurozone. ECB President Draghi is due to speak in Dublin as well but we anticipate the pound remaining quiet until May speaks or her speech leaks, whatever comes first.
Have a great day and a better weekend.
Jeremy Cook, Chief Economist