Talks resume but progress limited
It is a pity Shakespeare was born 450 years too early. He could have written a great play about Brexit. It has everything he would need to bring it to life. Goodness knows it needs something!
It is true of every relationship. Mutual exasperation. She wants him to mow the grass, he wants her to leave him to watch the game. Neither can understand the other's position and it quickly develops from an inane argument to something more serious.
Michel Barnier and David Davis suffer from mutual exasperation. To the interested observer it seems that Davis is the one laying on the sofa while Barnier wants the grass cut or at least an idea when it will be started.
At yesterday’s resumption of talks, Davis gave the impression that starting on a Bank Holiday was simply designed to annoy him. The UK maintains that it has made progress over the three issues that the EU demands progress upon before any discussion over a future relationship can begin.
On the question of the Irish Border, no change is the new policy. About EU citizens’ rights, Theresa May was a bit confused but it seems that people in the UK will be governed by UK laws and courts; and Boris Johnson summed up the position over the final bill with his (in)famous “Go Whistle” speech. Progress indeed!
Draghi drives the euro higher
Mario Draghi is a purposeful man who rarely says much but equally rarely wastes words when he does speak.
At Jackson Hole, he made his second speech in three days but still managed to avoid the subject of the common currency. He is fortunate that he has the Central Banker's mantle where not saying something is often as important as saying a lot.
His benign neglect has driven the common currency to new highs. It has now risen by more than 6% against the dollar since June when it broke through resistance at 1.1280. 1.2000 is now within touching distance but where it goes from there will be question on most traders’ lips.
This week’s US employment data, even though it has the potential to be more fictional than a Harry Potter novel, was slated, given the two previous months showed stronger than expected numbers, to provide a catalyst for correction but caution driven by the effect of Hurricane Harvey has dampened that argument.
Technical traders will see an overbought position for the common currency but new buyers continue to emerge. There will be a correction, of course there will, the only question is when. Post-holiday markets tend to follow the trend since traders’ reasons for buying when they went away tend to still exist when they return.
Be careful what you wish for
A stronger euro was on every German's wish list when parity beckoned back in January. Their pathological fear of inflation was being fed by a weak and weakening currency. Mario Draghi was the poster boy for their discontent staunchly refusing by word or deed to support the currency. Italian and French exporters were meanwhile thanking the Gods of Monetary Policy for their support.
Now, the tide has changed and the Germans got their wish. But, did all Germans? Herren Mercedes, Neff and Krupp may be see things a little differently now, and joined Sr. Napolina and M. Châteauneuf du Pape in railing against a stronger currency.
Sentiment indexes being released this week may see that change starting to begin.
The recent release of net migration details made interesting reading. The UK saw a fall in immigrants of approximately 230k in the year to March. It should be remembered that EU workers in the UK have seen an 11% fall in their wages in euro terms this year, making the UK not such an attractive destination. So, all the fuss over Brexit was unnecessary. Simply debase the economy and Leavers get their wish!