The Euro weakened against its’ major counterparties this morning, as German Chancellor, Angela Merkel, has been re-elected for her fourth term, despite seeing the worst result in almost 70 years. Merkel’s conservative Christian Democrat and Christian Social Union party will remain the largest party in parliament, despite this being the worst result for the party since 1949. The Social Democrats have previously been in coalition with Merkel’s party, however also seeing their worst election result since 1949, they have signed the end of the coalition and will instead become the opposition party. The right-wing nationalist party, Alternative for Germany, won their first seats and have become the third party. The AFD party started as an anti-euro party back in 2013 and has now turned focus to immigration and Islam.
UK Prime Minister, Theresa May addressed the EU on Friday afternoon to propose a transition period after March 2019 in order to fully implement Brexit. In her speech, she explained how this transition period will see Britain continuing to make an ongoing contribution to the EU, until the end of the current budget period, which ends in 2020. The transition period would protect companies by sudden overnight changes in tariffs and regulations if no trade deal is struck. The speech has been described as ‘constructive’ by the EU’s chief negotiator, Michael Barnier. Further talks are set to take place in Brussels this week, before the important European Council summit in mid-October, where the leaders of the EU nations will decide whether Britain has done enough to move the talks to trade.
The Sterling continues to gain against the Dollar, despite being downgraded by Moody’s Investor Service, by one notch to Aa2, the third-high investment grade. The concerns over the nation’s fiscal outlook was cited as the reason behind the downgrade, as well as blaming Brexit, a slow economy and Theresa May’s weakened political position. However, with the prospect of a rate hike from the Bank of England on the horizon in the coming months, the downgrade was not enough to see the Pound weaken.
Today will start with the release of the German Ifo Business Climate report, expected to post slightly better than last month at 116. This afternoon, ECB President, Mario Draghi will be testifying the economy and monetary policy before the European Parliament Economic and Monetary Affairs Committee. Across the pond, three FOMC members will be speaking throughout the afternoon and into the evening. The first is William Dudley, who is speaking about workforce development at Onondaga Community College. Later on Charles Evans will be speaking about the economic conditions and monetary policy at The Economic Club of Grand Rapids Luncheon. Finally, Neel Kashkari will be speaking at the Federal Reserve at a town hall event. Audience questions are expected at all the speeches so volatility is to be expected.
The US will be the focus of Tuesday, starting with the release of the CB Consumer Confidence report, expected to post slightly lower than last month at 119.6. FOMC member, Lael Brainard, will be delivering the opening remarks at a Federal Reserve Board Conference. Fed Chair, Janet Yellen, will be delivering a speech titled ‘Inflation, Uncertainty and Monetary Policy’ at the National Association for Business Economic Annual Meeting.
On Wednesday, the US will release the Core Durable Goods Order figure, expected to post 0.2%, and FOMC Member Lael Brainard will be delivering a speech titled ‘Labour Market Disparities and the Mission of the Federal Reserve’ at a forum for minority bank leaders. In Canada, the Bank of Canada Governor, Stephen Poloz will be speaking about the recent developments in the Canadian economy and implications for monetary policy. In New Zealand, the Reserve Bank of New Zealand are expected to keep rates on hold, with no changes expected in the statement which follows.
Thursday will start by BOE Governor, Mark Carney delivering the opening remarks at the Bank of England’s conference. Across the pond, the US will release the final GDP, expected to post 3.1%, and the Unemployment Claims figure, forecasted at 269k. In the afternoon, FOMC member, Stanley Fischer, will be speaking at the Bank of England’s conference, to deliver a speech titled ‘Reflections on the framework today.’
Friday will see a busy end to the week. It will start with the release of the Current Account figure from the UK, expected to post -15.8b. Also released is the final GDP figure, forecasted to post 0.3%. The Eurozone will post the CPI Flash Estimate whilst in Canada, the GDP figure will be released. The week will end with speeches from the Bank of England’s conference. BOE Deputy Governor, Ben Broadbent, will be taking part in a panel discussion titled ‘The future of central bank independence’, whilst both ECB President, Mario Draghi and BOE Governor, Mark Carney will be delivering the closing remarks.