The battle lines have been drawn. The Prime Minister has drawn first blood with his prorogation of Parliament for 5 weeks. The longest suspension since 1945. The response from the currency market was swift: an immediate 1-cent devaluation of Sterling against the Greenback, and the EURO and by similar margins across other major currencies.
The opposition, had been expecting this move but were clearly caught off-guard by both the timing and the length of the closure of Parliament. Outrage was expressed and roundly condemned by MPs of all parties - including Tory MPs. Parliament is back in session next week and we expect a response. However, analysts, say MPs are on the back-foot - beaten by government on both tactics and strategy. However, the situation is currently in a state of flux and may change noticeably in response to any further talks between the various bands of opposition MPs over the weekend.
Having said that, analysts expect a robust response from Parliament on Tuesday - the first sitting after the Summer Recess. On balance of probability, it is further likely that the government will hit back with a forceful response to whatever comes from Parliament. If this inevitable political ping-pong plays out, it is likely to bring wide swings in the exchange rate - which will create opportunities for both buyers and sellers of Sterling.
This is the exact environment Limit Orders were created. talk to your Dealer if you would like to find out more.
Current reports suggest that an emergency Brexit debate will be requested by some MPs on Tuesday. If the Speaker agrees to this, MPs would take control of House business for Wednesday. However, even if that bid is successful, they would seem to need the further support of the Speaker to hold a vote on a motion that would be binding on the Government. Finally, any successful motion would also need to clear the House of Lords, which will give Brexiteers an opportunity to run down the clock by ‘filibustering’. All of this suggests that it will be a race against time to get anything done before the HoC is prorogued, although there is talk that it could sit through next weekend if necessary.
While there is no notable ‘official’ economic data out in the UK next week, the August PMIs will provide important timely updates on Q3 growth. The July PMIs suggested that economic growth has been sluggish, but positive, in Q3. However, there is a notable difference between services, where the index is above the 50 expansion/contraction level, while and construction and manufacturing are below. Analysts expect similar outturns for August.
The key focus for global markets continues to be US-China trade tensions. A seeming escalation in the level of hostility last weekend led to a further fall in equities. More conciliatory comments subsequently prompted a rebound, and it still seems likely that further trade talks will be held in September. Nevertheless, the US & China both plan to go ahead with further hikes in tariffs from Sunday. Concerns about potential downside risks for global economic growth has prompted a further fall in government bond yields as markets discount cuts in central bank policy rates. The key dates over the next few weeks will be the 12th and 18th September when the ECB and the US Federal Reserve, respectively, will give policy updates. Both are expected to cut rates. Meanwhile, upcoming data will provide clues on the likely extent of any easing.
The coming week’s Eurozone data calendar looks relatively unexciting The August PMIs are final readings that are not forecast to change from initial estimates, which pointed to continued subdued economic growth in Q3. Potentially more interesting will be July updates for German factory orders (Thu) and industrial production (Fri), which will be watched for indications whether manufacturing in the region’s largest economy is stabilising. Meanwhile, Eurozone retail sales are expected to have slipped in July following strong growth in June. Finally, political developments in Germany will command attention over the weekend as regional elections could result in losses for the parties in the governing coalition to the right wing AfD party.
To discuss how the above may affect you, please contact your Currency Dealer at Heritage Pay on +44 (0) 203 858 7274.
See you next week!