Good morning,

GBP: Reshuffle the cads

As is de rigour nowadays the Sunday papers were full of conjecture on the future of the May cabinet and its leader. Focus will obviously fall on the Foreign Secretary Boris Johnson as the political circus returns to Westminster this week. Brexit talks also restart in Brussels and it is a speech on Brexit today from Theresa May that could easily set the pound up for a rocky week.

We expect Theresa May to address the Commons later today on Brexit but the message will not be for the gathered members in the Chamber but more for Brussels. Her plan is to tell the EU that no more concessions will be made on Brexit heightening chatter over a ‘no deal’ Brexit in 18 months’ time that eliminates the opportunity for an easy transition. This political grenade comes after little progress on the ‘divorce’ payment, the rights of each other’s citizens, Gibraltar or the Irish border.

A report seen by the Irish broadcaster RTE over the weekend declared “that an open border between Northern Ireland and the Republic will be impossible from a customs perspective”.

Sterling is a little stronger this morning on the basis of the belief that Theresa May will circle the wagons this week and put down any challenges to her role as PM. Traders are not pricing sterling to include her being tossed out of No.10 yet and the expectation is that they will not need to.

The only real UK data of note this week is due tomorrow in the form of manufacturing and construction output data which we expect to show ongoing weakness in output to mirror the poor sentiment reports seen at the beginning of the month.

EUR: Loyalists stage massive rally in Barcelona

A march of Catalonians and other Spaniards dominated Barcelona’s streets yesterday showing the country and the world the depth of feeling of unity in the region whose point was not made in the previous weekend’s unofficial referendum. While the euro is enjoying a notably calmer Monday this week compared to seven days ago we must now wait for the reaction of the Catalan Parliament; the risks of a unilateral declaration of independence have lessened but are not immaterial.

USD: Payrolls show whatever they want you to

Friday’s US payrolls showed jobs fell by 33k vs an expected gain of 90k, after a revised 169k (from 156k) in August. Wages numbers surged and unemployment fell to a 16 year low though and the dollar took off but all was not what it seemed.

1.5 million people surveyed said they weren’t at work because of bad weather so it is safe to say the weather impact was quite large. One explanation for the wage gain could be that low paid workers were not part of the sample this time round – over a million part time and therefore likely low paid jobs were lost last month so their wages would no longer be counted. It is very reasonable to say therefore that this number is skewed and will rebound back next month.

US CPI and retail sales are due Friday and we expect to strengthen the case for a December rate hike from the Fed.

Have a great day.