Good morning,

One year since Brexit

News is rather thin on the ground as we prepare for the last session of the week with most currencies ignoring the 1 year anniversary of the UK’s vote to leave the European Union. Overnight Theresa May unveiled a proposal to allow EU citizens who have lived in the UK for more than 5 years to stay and have access to public sector benefits as any Brit would.

The reaction from Brussels was distinctly lukewarm with the overall feeling being that this could have been proposed months ago and the time spent debating this could have been better spent elsewhere; there is a lot to talk about.

Big chips being played already in Brexit poker

Overnight the European Central Bank has proposed that it changes its statute book to take on the role as a regulator of all euro clearing. Currently that is run out of London and will be seen as one of the crown jewels of the Brexit negotiations. From a financial markets point of view this, alongside the ability of financial services sector to passport its regulatory status into Europe, are the largest talking points.

Negotiations will continue in Brussels today although the reaction in sterling will remain contingent on the headlines emanating from May, Davis, Tusk and Barnier.

Pressure rising on the Bank of England

Outgoing Bank of England member Kristen Forbes fired one final shot over the bow before she sails off into the sunset by reiterating her calls for a Bank of England rate hike by the end of the year by stating that “sterling’s depreciation has fundamentally shifted underlying inflation dynamics in a way that makes it more pressing to begin this voyage soon.”

Yesterday saw Japanese bank Nomura become the first bank to call for a rate hike from the Bank of England at its August meeting. Previously they had thought that the BOE would stay on hold until the 2nd half of 2019. Currently the market is pricing in a 21% probability that they are correct.

Nothing has really moved the pound overnight although a Yougov poll released overnight that shows 58% of respondents would choose British businesses having free access to trade with the EU but having to allow the EU citizens to live and work in Britain while 42% wanted a control over immigration over and above a free access to trade with the EU is getting a lot of attention.

Inflation crucial for Eurozone and US PMIs

The data calendar perks up a touch this morning with the latest PMI numbers from the Eurozone and US this afternoon. Both sets should show economies growing well with particular focus falling on inflation and employment measures within those numbers.

Have a great day and a better weekend.

P.S. Lions prediction: New Zealand 26 – British and Irish Lions 18

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