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Brexit? Not at that Price!

Forty Billion? Forget it!

 

Michel Barnier, the EU’s Chief Negotiator must have had a good chuckle over his croissant and cafe noir yesterday morning as he read that the U.K. is going to offer a settlement of forty billion Euros as compensation for leaving the EU.

 

No matter how stridently the report is denied by the Government, this is probably going to be the U.K.’s opening gambit.

 

Aller Siffler (Go Whistle) will likely have been his most printable response as he considered a hard Brexit and months of tedious uncertainty.

 

The pace (or lack thereof) of negotiations must be starting to alarm Barnier as the U.K. Government continues to prevaricate over logistics rather than concerning itself with the reality of the negotiations.

 

Sterling is going to accept the mantle as the weakest G7 currency as inflation erodes real wages, Brexit brings economic uncertainty and slowing growth ties the hands of the Central Bank.

 

Mark Carney, the Bank of England Governor, appears to be on the same page as M. Barnier at least, seeming to take seriously the threat to the U.K. economy that Brexit is already causing let alone the effect it will have going forward.

 

Trumps absence purely a coincidence.

 

Hands up if, when you saw the rally in the dollar, you immediately thought of the pictures of Donald Trump boarding an aircraft for his (seventeen-day) vacation.

 

It is, of course, purely a coincidence as Trump is equally capable of screwing up from a sun-lounger or a golf cart as he is from the Oval Office.

 

Employment data in the U.S. now must be taken seriously as, for the first time since January, we have two consecutive numbers above 200k! Just imagine, had we had an economic stimulus package what level the dollar would be at now! That is coming (probably) but in the meantime, job growth and a pickup in the rate of growth in wages has slowed if not halted the dollar’s fall.

 

Against the Euro it is likely that the correction is simply that, a pause in the common currency’s seemingly inevitable rise to 1.2000. Given the large part (53%) of the dollar index that is made up of Euros, any gains there will also be limited.

 

This week’s inflation report could see the dollar’s rally fizzle out almost as quickly as it started. Several FOMC members have voiced concern over the lack of inflation in the U.S. economy. Last moths 1.6% is likely to be eclipsed but it won’t reach the 2% threshold that will interest Janet Yellen.

 

Come back in a few weeks.

 

The market is now entering silly season. Between now and labour day (August bank holiday in the U.K.) markets will be thin and directionless with improbable stories dominating. Politicians and Government officials are on vacation, as are rate setters and traders are lacking in motivation until they have more than rumour and innuendo to go on.

 

Technically, the dollar remains under pressure. The long downtrend which started around the time of Trump’s inauguration is not over despite the employment report. This will be a healthy correction although the dollar could turn if the width of the gap in interest rate differentials appears likely to widen.

 

As we enter Q4, the UK and Eurozone will remain firmly entrenched in the no change camp while, should data permit, the Fed will want to hike again. The stock market still shows little sign of correcting although its rate of growth has slowed a little.

 

The Fed is very aware of not bringing about a major fall in the Dow although its rise above 22,000 looks fragile

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