Johnson begins campaign
The “big guns” of the Conservative Party have been quiet recently as Theresa May has been given sufficient rope to hang herself. Since the return of Parliament following its summer recess, the Prime Minister has been “treading on eggshells” determined to rally support for her brand of non-controversial negotiation.
That stance was dismantled in one fell swoop by her Foreign Secretary Boris Johnson over the weekend as he produced his “Blueprint for Brexit” totally disregarding the government's delicate negotiations with the EU.
Johnson has been the major critic of the demands for a payment of close Eur 100bn as the “bill” for leaving the EU, famously commenting in Parliament that they can “go whistle”. In his blueprint, Johnson reaffirmed his belief that payments should stop once the UK leaves the EU and savings should be ploughed back into the National Health Service.
Theresa May and her Deputy Damian Green have both been conciliatory in their reaction to Johnson, a stance not repeated by his Cabinet colleagues. Amber Rudd the Home Secretary, clearly charged by the Leadership with voicing their true feelings commented on TV accusing Johnson of “back-seat driving” the Brexit process.
Vlieghe drives sterling higher
No such back-seat driving from Gertjan Vlieghe, a renowned MPC dove who “changed his spots” dramatically on Friday turning from dove to hawk with hardly a breath in between.
In a speech to the Society of Business Economists, Vlieghe commented that the time was coming close when a rate hike might become necessary in the UK, “if the economy continues apace” he feels that the appropriate time “might be as early as in the coming months.”
In the words of Aladdin, there may be a few provisos and quid pro quo’s such as domestically produced inflation and a headline above 3% but the conversion of such a confirmed dove drove sterling well above levels not seen since the Brexit Referendum.
It has reached 1.3620 and 0.8778 crashing through strong resistance at 0.8820 with ease as short positions were covered.
There is little doubt that there are still reservations about the headwinds facing the UK over Brexit although this week's policy speech from Theresa May in Florence on could bring some clarity. The single currency is running out of steam as “this year’s good news” fades and the coming political challenges bring further corrections.
FOMC meeting may provide advance guidance but little else.
The FOMC will find itself a little becalmed this week. The drivers of the US economy are in a state of flux. Following surprisingly strong revisions to Q2 growth data after much stronger corporate profits there has been little follow through in inflation. The sense of euphoria that the economy was starting to pick up and rates could return to normal engendered by two months of headline employment data above +200k has faded. The notoriously fickle nature of the employment data due to the haste with which it is released came back to bite traders and the subsequent data was decidedly weak.
Lael Brainard a permanent member of the FOMC commented recently that the Federal Reserve should delay raising US interest rates until it is confident inflation that is now “well short” of target will rebound.
In her speech following the almost certain no-change vote from her colleagues on the FOMC, Janet Yellen the Fed Chair may give some advance notice on the tapering of the Fed’s Balance Sheet bloated by the “printing of money” during the financial crisis but until inflation, reported last week at 1.7%, starts to pick up a further hike is out of the question