Good morning,

GBP: So here we are

There is no running away from it now, by the end of the day we will either be looking at the closest we have ever been to a Brexit deal or further away than ever. Today could be the day when the Prime Minister’s Chequers plan – as well as some changes to the rules on Northern Ireland – is recommended by Cabinet and then sent to the European Union to ratify.

The change and catalyst for this plan is that, should a deal on the future arrangement not be reached during the 20 month transition period expiring in December 2020, then the whole of the UK will remain in a time-limited customs union with the European Union. Remainers don’t like it, Brexiteers don’t like it, but that is the material change that will see Cabinet vote on whether to recommend this deal.

Once the EU sign off on it then the plan would be passed back to the UK parliament who would then vote on it. If that vote is successful, all EU parliaments vote on it and a deal is done – a no deal Brexit is avoided.

As you can tell from the paragraphs above there are a lot of ‘ifs’ that need to be traversed before a deal is set in concrete and both today’s Cabinet vote and, were we to get that far, a parliamentary vote would represent huge risks to both the onward passage of the bill and the health of the pound.

Sterling is a binary bet at the moment; higher on a Cabinet assignation with caveats remaining over a parliamentary vote, lower on a Cabinet revolt. From then we start talking once again about a no-deal scenario, a general election or a second referendum, and all outcomes more divisive than what is potentially on the table.

Today is Judgement Day and we will know which way judgement has fallen this afternoon following a Cabinet meeting slated to begin at 2pm.

CNH: Holding on for now

News out of China has been strong overnight with industrial production and business investment measures both improving. Unfortunately, such strength was also given a backdrop of slowing personal consumption and a weak housing market. In the round, today’s run of data is not going to provoke a policy move just yet, although it is a matter of ‘if’ and not ‘when’ that additional monetary and fiscal stimulus is added into the economy.

In trade news, the US and China have resumed contact “at all levels” ahead of a meeting between Presidents Trump and Xi later on this month.

EUR: Strange emissions

Sterling’s run higher and poor data from the Eurozone combined yesterday to push GBPEUR up to its highest level in 8 months. German GDP this morning has been confirmed to have contracted in Q3 this morning; while a lot of this is due to changes in emissions standards and therefore a one-off hit to the country’s car industry, critics will leap on the numbers to suggest that the single currency area is in dire straits.

Have a great day.