Hammond Backtracks on Brexit Deal
Chancellor Philip Hammond has “bent the knee” to Brexit hardliners as he signed a joint article with Liam Fox for the Sunday Telegraph, which said that the UK will definitely leave both the customs union and the single market when it exits the European Union (EU) in March 2019. Hammond had called for a transitional deal which could last up to three years, keeping the current trading arrangements with the EU and the rules on movement for workers. David Jones, a former Brexit minister and member of the pro-leave Tories camp attacked Hammond, saying that he took advantage of Theresa May’s vacation period to break ranks.
The South Korean president, Moon Jae-in, urged all sides that there must not be one more war in the Korean peninsula. He said that North Korea’s nuclear situation must be resolved peacefully, despite the ups and downs. The South Korean president added that he is certain that the US will respond to the situation calmly and responsibly. Asian stocks rallied after recording losses for the last three days as investors grew calmer without the immediate threat of war.
Pound Sterling – UK Markets
Today, Sterling lost 0.14% in value against the US Dollar, with the exchange rate set just below the $1.30 mark. The Pound edged up against the Euro, with the exchange rate set at €1.10. The next three days will include important data releases regarding UK inflation, retail sales, producer prices and the unemployment rate. Any figure that won’t be in line with analysts’ expectations will affect the Pound.
International Trade secretary, Liam Fox, and Chancellor Philip Hammond declared, in a joint article for the Sunday Telegraph, that the UK is not going to remain to the customs union during the transitional period, after it leaves the EU. While Fox is considered one of the hardliner pro-leave ministers in the cabinet, the surprise came from the Chancellor who, during the previous weeks, seemed to have been in favour of staying in the customs union when the implementation period, as ministers call it, would come in effect.
Political analysts suggest that the joint article was an attempt to prove that the cabinet is not split in two over Brexit. Vince Cable, the leader of the Liberal Democrats, said that Hammond’s “rebellion” didn’t last too long and that, now, he has teamed up with the ideological supporters of a “hard” Brexit. Richard Corbett, deputy leader of Labour’s members of European Parliament, said that the Chancellor “caved in”.
US Dollar – US Markets
The US Dollar rallied against the Euro, with the exchange rate set at €0.84. The US Dollar Index (DXY) crawled up 0.2%, after dropping on Friday by 0.4%. The reason for the drop was data showing that US inflation grew by 0.1% in July versus the expected 0.2%.
Weak inflation data reduced the analysts’ expectations for one more hike of the Fed’s benchmark interest rate during this year. However, it wasn’t only bad news for the US Dollar as it managed to gain 0.4% against the Japanese Yen, despite data showing that the Japanese economy grew by 1% in the second quarter of 2017.
Donald Trump’s muted reaction to the death of a rights activist during a protest against a white supremacist rally in Charlottesville, Virginia, put him one more time in the spotlight. Heather Heyer was killed when a car, driven by a 20-year old far-right supporter, rammed into a group of protesters. Trump condemned hatred and violence “on many sides”, prompting harsh criticism against him by both Republicans and Democrats.
Euro – European Markets
The Euro slumped against the US Dollar, losing 0.15% in value, with the exchange rate set at $1.18. The most important data release today was the one regarding the industrial production in the Eurozone.
Eurostat published June’s industrial production data, which shows the volume of production of industries such as factories and manufacturing. Data showed that, in June, industrial production in the Eurozone declined by 0.6%, on a month-to-month basis, further than the expected -0.5%. On a yearly basis, the industrial production in June grew by 2.6%, less than the anticipated 2.8%.
Tomorrow, the German GDP data for the second quarter of the year will be published, while the celebrations for Assumption Day will close most of the Eurozone’s markets. The Eurozone’s GDP preliminary data for the second quarter is due to be released on Wednesday and the inflation data on Thursday are expected by market analysts, who will like to check to see if the economic recovery is still strong.
Other Currencies – Highlights
The Pound lost a bit of ground against the Australian Dollar, trading at 1.64 AUD. Christopher Kent, the Reserve Bank of Australia’s (RBA) Assistant Governor, delivered a speech in which he said that “regarding mortgages, what matters when it comes to financial stability is not what the average borrowers are doing, but what the more marginal borrowers are doing.” Kent noted that the riskiest borrowers, who have borrowed the largest amounts relative to their home’s current value, have the skinniest repayment buffers. In April, the RBA had announced that at least one third of Australian borrowers were less than one month ahead on their home loan repayments, leaving them exposed to a rise in interest rates or an economic downturn.
Sterling strengthened against the New Zealand Dollar, trading at 1.77 NZD. Data released early in the morning showed that retail sales in New Zealand continued to grow strong in the second quarter of the year, supported by sporting events and the strong tourist season. Data showed that retail sales grew by 2% in the June quarter with solid increases in building supplies and electronics. However, a Westpac report said that it expects more moderate household spending growth in the months to come.