Can We Possibly Be Headed to for Hard Brexit?

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Market Drivers December 5, 2018
UK PMI Services Misses
AUD GDP sinks
Nikkei -0.53% Dax -1.00%
Oil $52/bbl
Gold $1235/oz.
Bitcoin $3883

Europe and Asia:
AUD AU GDP 2.8% vs. 3.2%
GBP UK PMI 50.4 vs. 52.5

North America:
No Data – Markets Closed

Cable recovered in early London dealing today retaking the 1.2700 figure despite latest economic data that suggested the services sector is on the verge of contraction.

UK PMI Service came in at 50.4 – much lower than 52.5 expected and within a whisker of the 50 boom/bust level. This was the worst reading in 15 months with business optimism weakest since June 2016. According to Chris Williamson, Chief Business Economist at IHS Markit, which compiles the survey: “A sharp deterioration in service sector growth leaves the economy flatlining in November as Brexit concerns intensified. Measured across services, manufacturing, and construction, the survey results suggest that the pace of economic growth has stalled. With the exception of July 2016, when business slumped in the immediate aftermath of the EU referendum, November saw the worst performance since February 2013. “The surveys are so far consistent with 0.1% GDP growth in the fourth quarter, thanks to the expansion seen back in October, but growth momentum has since been lost and risks are clearly tilted to the downside. “

Cable, however, ignored the data and roared back towards the 1.2800 figure by mid-morning London trade as traders pinned hopes on some sort of a Brexit compromise passing the UK Parliament. As of now there is no evidence that PM May’s plan would pass, but today’s data only underlines the risk ahead. If the politicians allow the matter to spin out of control UK cold tip into a recession as early as the start of the start of the year as the threat of hard Brexit brings all business activity to a standstill.

Markets as betting that this precise pressure will make UK politicians buckle to some sort of compromise, but if the political situation spins out of control cable cold collapse by five or even ten big figures as the prospect of hard Brexit threatens to become a reality.

Boris Schlossberg
Managing Director

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