What’s been happening?

Pound Sterling – UK Markets 

The British pound plummeted to its weakest level against the dollar since April 2007 and dropped to its lowest level vs the euro in four months as British Prime Minister Theresa May, in an address to the Parliament, confirmed the deference of the vote in the House of Commons on the Brexit vote and said that the vote will be delayed while admitting that there was no majority. Following this development, opposition leader Jeremy Corbyn called May and the government to resign. May, on the other hand, said that she will be going back to Brussels for emergency talks. However, Donald Tusk, the President of the European Council, clarified the EU’s position in a tweet that read: “We will not renegotiate the deal, including the backstop, but we are ready to discuss how to facilitate UK ratification. As time is running out, we will also discuss our preparedness for a no-deal scenario.”

The data published by the UK’s Office for National Statistics on Monday showed that the industrial production and manufacturing production contracted 0.9% and 0.6% on a monthly basis in October, respectively, and both readings fell short of the experts’ forecasts. Moreover, the ONS further announced that the trade deficit in October rose to £3.3 billion from £2.23 billion in the same period. Finally, after staying unchanged in September, the real GDP expanded by 0.1% to match analysts’ estimate. Commenting on the data, “GDP growth slowed going into the autumn after a strong summer, with a softening in services sector growth mainly due to a fall in car sales. This was offset by a strong showing from IT and accountancy,” said Ron Kent-Smith, Head of National Accounts.

US Dollar – US Markets

With its European rivals suffering heavy losses amid ongoing political jitters, the dollar gathered strength on Monday and the US Dollar Index, which tracks the greenback rose to its highest level of the month. The only data from the U.S. on Monday showed that the number of job openings was 7.1 million on the last business day of October. “The number of hires edged up to 5.9 million (+196,000) in October, nearly matching its series high in August. The hires rate was 3.9 percent in October,” the U.S. Bureau of Labor Statistics said. 

In an interview with the Wall Street Journal (WSJ) over the weekend, the US National Economic Council Director Larry Kudlow argued that the soft inflation data could cause the Fed to refrain from hiking the policy rate in December. “Sounds to me like the Fed's spokespeople are signalling maybe one more rate hike in December, later this month, and maybe no more for quite some time. Or maybe they won't move this month," Kudlow said. 

Euro – European Markets

The sentiment report published by the Sentix GmbH revealed that the investor confidence in the euro zone plummeted to its lowest level since December 2014 at -0.3 in December and missed the market expectation of 8.1 by a wide margin. "The dynamics of the downturn are similar to those of the pre-crisis year 2007," Sentix noted in its publication and added: "Expectations, as weak as in August 2012, challenge the (monetary) policy." Moreover, according to the Destatis, Germany’s imports rose 1.3% in October compared to a 0.7% growth in exports and the seasonally adjusted trade surplus retreated to €17.3 billion from €17.7 billion. 

Meanwhile, French President Emmanuel Macron addressed the nation on Yellow Vests protests and declared an economic state of emergency while announcing that year-end bonuses would be exempted from income taxes and the minimum wage would be increased by €100.

On Italy-related headlines, Italian daily newspapers Il Messaggero reported that the PM Conte was looking to agree on a 2% budget deficit target with the EU while the economy minister Tria was trying to bring the target down to 1.9%. Furthermore, the revised budget is expected to be presented to the EU on Wednesday. Additionally, in an interview with Sueddeutsche Zeitung paper, the Eurogroup Head Centeno reiterated that the EU must treat Italy like every other country and that the rules of stability and growth pact apply to all. 

What’s coming up? 

UK: The ONS will release the employment report, which includes average earnings, unemployment rate and claimant count change.

US: The NFIB Business Optimism Index and Producer Price Index (PPI) will be featured in the U.S. economic docket on Tuesday.

EU: The Zentrum für Europäische Wirtschaftsforschung (ZEW) will publish the Economic Sentiment report for Germany and the euro area.