Brexit Deal Doubts Keep Cable on Defensive

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Market Drivers November 14, 2018
Brexit deal doubts
UK Inflation
Nikkei 0.16% Dax -1.11%
Oil $55/bbl
Gold $1199/oz.
Bitcoin $6500

Europe and Asia:
EUR GE GDP 1.1% vs 1.3%
GBP UK CPI 1.9% vs. 2.0%

North America:
USD CPI 8:30

The majors were steady for most of Asian and early European trade but cable drifted lower all night long as doubts continued to build over the prospects of the Brexit deal negotiated by Theresa May.

The loud chorus of opposition from the more hardcore members of her coalition, especially over the notion that there would be no deadline on extracting Northern Ireland from EU rules, cast doubt that PM May would be able to pass a vote through Parliament. Today the PM will call a Cabinet meeting at 2PM London time to gauge support. But even if she wins the approval of the majority of her advisors her prospects in UK Parliament look relatively grim at the moment. As of now, she does not have the majority of votes although that may change as UK politicians begin to feel the pressure of the moment when the proposal comes up for the vote. Few UK politicians would be willing to take responsibility for an unruly hard Brexit if they scuttle the deal. Still, Ms. May’s tenuous position is clearly creating turbulence in cable and if she can’t secure support from her cabinet today, the pair could once again tumble to the 1.2800 figure.

On the economic front, UK inflation data came in a bit soft with CPI at 1.9% vs 2.0% eyed but markets ignored the news as all eyes will be on 10 Downing street today. Still, the cooler price readings suggest that UK economy is far from overheating at the moment and BOE can safely stay pat irrespective of the Brexit developments.

In Europe GDP was in line at 1.7% vs. 1.7% but Industrial Production rose a surprising 0.9%s vs, 0.3% eyed. Nevertheless, German GDP registered its worst growth since 2013 and the negative quarter on quarter reading was the first such print in three years. Bundesbank noted that downside risks have increased materially and it does not look like demand will pick up much in Q4.

In North America today, the eco calendar carries US CPI data with core reading expected to rise 0.2% vs. 0.1%. The data should have little impact on trade as the market essentially assumes that the Fed will maintain its tightening course for the foreseeable future. Of more import will be equity flows today as traders look for some sort of a rebound in stocks. If Dow breaks the key 25,000 support level USDJPY could tumble through 113.50 on risk off flows as the day proceeds.

Boris Schlossberg
Managing Director

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