Good morning,

Deal or no deal?

GBP fell off a cliff as the BBC published an article stating that no deal had been reached between Prime Minister May and President Juncker of the Europe Commission regarding the U.K.’s exit.

News followed that the Democratic Unionist Party declined to accept any deal in which Northern Ireland would be treated differently to the rest of the U.K. With that being said, the Pound still traded near YTD highs as news emerged later from Prime Minister May’s office that the two “would reconvene… and conclude this positively.” GBPUSD was at 1.3465 level at close yesterday.

This morning we saw the UK Service sector PMI’s come out worse than expected, and worse than the previous months’ reading at 53.8 vs. 55.6, bringing Sterling down around half a cent to 1.3410 at the time of writing. The Services PMI is an important number for the economy as this sector represents approximately 80% of UK GDP.

All of us here remember that fateful night of June 23rd when the U.K. voted to sever ties with the Union, sending Sterling down over 10% in a few bleak trading hours. We do feel somewhat that the tides are beginning to turn with the Pound. For example, when you look at the All Sector PMI (combining manufacturing, construction and services) we see the 2nd highest growth rate in 7 months, hinting at an economy that will grow robustly in Q4.

No ifs, no buts – we’re getting tax cuts

Now that the votes have been cast and the motion passed, a period of negotiation commences to align on a single tax reform bill that will have to be agreed on by both the House and the Senate. Republicans are pushing hard for a pre-Christmas conclusion.

This Friday, the markets will watch nonfarm payrolls (my personal favorite of all the economic monthlies) and the expectation is that the economy will have produced fewer jobs than October, down approximately 75,000.

We perceive that the anticipated interest rate hike from the Federal Reserve is already priced into markets and that the news, when it comes, will likely not impact markets too greatly. Instead, the focus for change for USD will likely be political; tax progress, travel ban, and the investigations surrounding Russian involvement in the 2016 presidential election.

Have a great day.

Christopher Morriss, The WorldFirst Team