A big reality check for the UK government came from the EU’s chief Brexit negotiator Barnier who confirmed what a lot of people already knew, that the British government’s Brexit proposal — specifically for a free EU-UK trade deal for goods and agricultural products — is a no-go for the EU. Barnier, lest he be misunderstood (a la last week), spelt out that he is “strongly opposed” to key parts of the plan while stating that it would mark “the end of the single market and the European project.” His remarks upend a piece written by Prime Minister May in the Sunday Telegraph where she said there will be “no compromises,” although she left herself wriggle room by adding “…that are not in the national interest.” If the EU were to make the concession of creating a single market for goods with a nation of third country status, it would oblige the EU to re-negotiate the 34 trade agreements (encompassing 60 countries) it has with other nations and trading blocs. So, what’s likely to happen from here? I think that a no-deal scenario, which all but hardcore Brexiteers think is a bad idea, is unlikely. However, I also thought in June 2016 that a YES vote was unlikely, so who really knows? However, exiting the EU without a new deal would be devastating to the UK economy as it would see instant and significant tariffs (both new tariffs and rate increases on existing levies) smacked on the 90% of UK exports that go to the EU and the 60 other nations that the EU has trade agreements with. I believe/expect the government will ultimately be forced to work toward an agreement similar to the EU-Canada deal (a free-trade deal with restrictions) while looking to secure a transitory period to leave time to negotiate this beyond the formal Brexit day on the 29th March next year. The Irish border issue remains as confused as ever and weighs on both trade and political tensions.
Meanwhile, the data continues to be mixed but this morning’s PMI data was particularly weak. UK August manufacturing PMI missed expectations in falling to a 25-month low of 52.8 (the lowest since the immediate aftermath to leave the EU), down from 53.8 in July (having been revised down from 54.0). The median forecast had been for a reading of 54.0. The details of the report make for ugly reading, with business optimism falling to a 22-month low, job creation near stagnation, new export orders contracting for the first time since April 2016, while overall new order inflows eased to its weakest during its current 25-month sequence of expansion. Price pressures remained strong, with both input costs and output costs rising at above-average rates. Brexit-related uncertainty and the impact of an escalating global trade war lie behind the report’s weakness.
The BBC is also reporting that the UK Treasury and Mark Carney (the Governor of the Bank Of England) are in negotiations to extend Carney’s contract (once again) to the summer of 2020.
Cable gapped down on the Asian open today and continued it’s decline into the day low at 1.2863. The breach of the S1 (1.2925), 200 moving average (1.2916) and the psychological 1.2900 and S2 all adds to the pressure on the Pound. First Support is now the key H4 level at 1.2860 and then the daily S3 and 20-period moving average at 1.2840.