Good morning,

GBP: May raises the stakes

Addressing the Commons yesterday Prime Minister Theresa May told the UK and EU that preparations had begun to prepare for the UK leaving the EU on March 29th 2019 with no deal signed. This so-called cliff-edge Brexit remains the worst form of Brexit for businesses who trade internationally in our opinion given the delays to goods and services trade, the unknown legal structure of trade partnerships and the uncertainty over additional taxes and costs.

While there was little within May’s speech and her subsequent follow up to the questions of MPs, the government’s publication of whitepapers on trade and customs left a lot to be desired. Some of original thought coming out of the Department of International Trade includes joining the Trans-Pacific Partnership trade deal, allowing unilateral free trade, ‘free port’ areas to haven trading activity near the coast and a possible application to join NAFTA. Newsnight Editor Chris Cook ran a good piece on it here
There is little opportunity to tear these proposals apart but the calls that the UK will have 40-60 trade deals with non-EU trading nations by the time we leave the EU are difficult to believe and these plans are not enough to suggest that we are any closer to making ground on them.
We are not sure whose court the Brexit ball is in at the moment but the next intervention by the EU will come on Thursday as this week’s round of negotiations comes to an end.
Sterling remained relatively unmoved by this all and praise for her statement from Boris Johnson may have gone some way to allaying fears that an imminent coup against the PM remains just out of sight. Today’s risk comes from the UK industrial production numbers at 09.30.

EUR: Judgement for Puidgemont

It looks like we are finally getting to some form of conclusion of the Catalan question today with a meeting of the Catalan parliament which will see either a unilateral independence call or not. Catalan companies are announcing their decision to leave the region at an increasing rate but the separatists are continuing with a plan to form a coalition with the populist Podemos party and members of the Basque separatist movement in order to obtain a vote to get rid of PM Mariano Rajoy.

Industrial production numbers are due from France and Italy but the political situation in Spain will increasingly dominate.
We expect a statement from the Catalan leader at about 6pm local time.

NZD: Kingmaker to make a decision on Thursday

New Zealand’s election has left the populist NZ First as the deciding factor between a National or Labour party government. The NZD has been on the back foot since the election and a Labour coalition with NZ First combining interventionist policies on both the wider economy and the currency would likely be seen as the ‘worst’ outcome.

The Day Ahead

The US will come back to work after their Columbus Day holiday yesterday but the data calendar remains quiet.

Have a great day

Jeremy Cook, Chief Economist