59 days to go
With less than two months to go until the UK is due to leave the EU (for a second time), Prime Minister Boris Johnson still faces a number of obstacles prohibitive to an orderly Brexit. Following his move to suspend Parliament in the run-up to the Brexit deadline, Johnson’s ‘do or die’ pledge to withdraw by Oct 31stnow seems less like bluff and bluster than most originally thought. The suspension will make it even harder for MPs to legally block a disruptive exit and has subsequently led several bookmakers to increase the chances of a no-deal perilously close to 50:50.
Clearly, the move to prorogue Parliament is to preserve Johnson’s core strategic aim of keeping a no-deal on the table. This would provide him with leverage in EU talks that are set to resume this week. Still, it’s highly unlikely that Johnson can expect more than a few minor concessions on the Irish border and the EU’s chief negotiator, Michel Barnier, has already said the backstop won’t be ditched. The move to suspend Parliament also has a cynical aspect; Johnson knows there’s a majority in the House of Commons that have already rejected a no-deal and would like to leave them as little time as possible to legislate against it. Boris has even threatened to kick any Conservative MPs who try to block a no-deal out of the party, meaning they’d be banned from standing at the next general election, which may only be a few weeks away.
Realistically, where we go from here is unknown; MPs want to rule out a no-deal, but Johnson’s government needs to keep it on the table. The EU wants workable solutions to the Irish border backstop, but Johnson wants it removed entirely. Will we get a deal? An extension? A general election? At this point, who knows? Meanwhile, the Pound has sunk lower, manufacturing activity is grinding to a halt, and the longer-term stability of the British economy is being called into question.
Bottom line: As we see it, Boris Johnson is gambling with the future of the UK despite being an unelected Prime Minister fronting a minority government. All the tactical manoeuvring in the world won’t make up for the lack of wise leadership, and his legacy could be that of a desperate man who put personal politics above the national interest.
Expected Parliamentary schedule this week
Tuesday – MPs return after a summer break. Boris Johnson will likely offer a statement about the recent G-7 meeting in France, and Michael Gove will talk on the planning in place should the UK leave the EU in a disorderly manner. MPs opposed to a no-deal Brexit will likely put forward legislation to block a disorderly exit under an SO24 (Standing Order 24). This allows MPs the right to ask for a debate on an urgent topic, and could see the first reading of the new bill, introducing it to the Commons.
Wednesday – Theoretically, the bill could then be up for debate on Wednesday. To progress further, the bill would need to be backed by more than half of MPs and be successful in a series of votes. Sajid Javid will also give his first spending review as Chancellor—usually, this would be a keenly anticipated event, but given other political developments, it might not take centre stage. Boris Johnson’s Prime Minister’s questions are also on the agenda.
Thursday – Should the bill gain support on Wednesday, it could be in the House of Lords as early as Thursday. The bill would then face another debate and round of votes.
Monday – If the bill gained the support it needs in every other round of voting, it could be formally made into law.
The week ahead
The Pound begins the week trading heavy as fears of a no-deal Brexit heighten as Parliament returns from summer recess. The Pound against the US Dollar may test the August 2019 low of 1.2015 this week, beyond that is January 2017’s low of 1.1986.
- Monday has kicked off with a weaker-than-expected UK Manufacturing PMI reading of 47.4 vs the estimated 48.4. The data release signals that the UK’s supply side is feeling the brunt of weakness caused by Brexit.
- On Wednesday afternoon, the Monetary Policy Committee at the Bank of England will testify on UK inflation and the economic outlook. While the outlook is heavily dependent on the Brexit outcome, acknowledgement of an increased no-deal Brexit risk will be a significant event for the BoE.
The Euro ended August below 1.10 against the Dollar, a level that hasn’t been touched since May 2017. The anticipation of European Central Bank easing has been a significant contributor to Euro weakness recently, and the EUR/USD pair looks set to continue its downward trend.
- Monday began with a set of Manufacturing PMIs from the Eurozone’s largest economies: Italy, France, Germany, and Spain. The data points came in at the expected contractions except for France, which had an expanding manufacturing sector in August.
- On Wednesday, August’s Services PMIs for the same nations above will print. Previously, European Services have been buoyant, and the expectation is for continued expansion in all nations.
Monday is Labour Day in the US, so trading volumes could be lighter than usual, potentially resulting in greater short-term volatility. The US Dollar Index has begun the week reaching year-to-date highs which have weighed significantly on the Pound and the Euro this morning. Also, various Federal Reserve officials will be speaking throughout the week, so comments on upcoming monetary policy may bring some additional volatility.
- The US ISM Manufacturing PMI will be released on Tuesday afternoon which is expected to remain in expansionary territory.
- Non-Farm Payrolls and Average Hourly Earnings will be released on Friday along with Fed Chair Powell speaking in the evening. The US labour market is expected to have stayed resilient in August, adding 168k jobs. Average wages are expected to have grown by 0.3% month-on-month.
All content is written by the Global Reach Trading Desk. The opinions expressed are not the view of Global Reach Group and are not intended as investment advice.