Sterling’s recovery continued yesterday as the House passed the “no deal” bill, with the legislation stating that the Prime Minister will have until 19 October to either pass a deal in Parliament or get MPs to approve a no-deal Brexit. If both fail, they will have to request an extension to the UK's departure date to 31 January 2020. It should be noted that the EU still need to approve the extension. That said, it continues to move the UK a step further away from a “no deal” Brexit resulting in sterling strength. The bill needs to be now approved by the House of Lords, which based on various media reports could be achieved by the close of play on Friday. Following what is being dubbed by PM Johnson as the “surrender bill”, he tabled a motion for snap election for 15 October which failed to reach the two thirds majority required. However, it was reported on Sky News that Labour sources suggest that they are united on an election only after 31 October, ensuring an extension has been requested if required.
Economic data for the UK was disappointing. The PMI services-sector remained in expansion territory for August, but the pace of growth slowed by more than expected with business confidence at 3-year lows. The composite index (manufacturing, services and construction) held just above the 50.0 threshold (the defined level between expansion and contraction) suggesting that the GDP could be tepid or even contract slightly. In the meantime, Bank of England Governor Carney stated that the worst case in a ‘no-deal’ Brexit had now eased; however, the economy is still weak. He also suggested that he would back monetary easing in the event of a disorderly Brexit. Both the data and comments were largely overlooked with all the drama in Parliament.
In the Eurozone, the PMI services was revised slightly higher with the French figures posting a 9-month high. In the US the Beige Book reported little change in conditions whilst New York Fed President Williams stated that he is ready to act as appropriate to support the economy and a return to 2% inflation. Williams went on to state that the Fed needed and needs to be flexible with regards to the economy and monetary policy.
Looking to the day ahead, the market will continue to focus on Parliament for clues on the path of Brexit and potential snap election. In the US, the market will watch the ADP private payrolls figures as a potential guide to Friday’s ‘official’ labour market report. In addition, the August ISM non-manufacturing index is set for release.
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