17/01/19 - Morning FX Report: Well, Hasn't this Been Fun
Good morning
Theresa may lives to fight another day, as pretty much everyone thought she would. Now there's cross party talks taking place, but we're not sure if those are genuine 'how do we move on from here' or 'get it off your chest and let me see what I can get out of the EU' style talks.
The problem we think we'll see is that despite the defeat and the confidence vote is still sticking very much to her red lines on Brexit, which are the red lines that have got her stuck in stalemate. Of course, its not just her in the talks and Labour and others would be wise to provide some constructive input, rather than just keep calling for a general election (Angela Rayner).
Still, the market is breathing a sigh of relief and Sterling traders are still of the mindset that this is leading us towards a closer relationship to the EU for the time being and there will be time for a hard Brexit panic in March if it doesn't go that way. As such, we're still trading withing the ranges that we have been, but towards the higher end of them.
On the note of a hard Brexit; Mark Carney has said that UK banks will have credit criteria relaxed which would make up to ￡250bn available to the economy immediately. Which is a sensible start.
Ireland have apparently been making plans for border checks in the instance of a no deal and have been accused of keeping them a secret. We can't see what the problem is and if anything it's nice to know someone's putting some practical plans together. Though they do seem to be the only ones; The rest of Europe with the exception of the Dutch, are apparently as unprepared as we are and the action, much like here, is political and not practical.
This is all playing out well for the SNP, who believe the time is right for another crack at an independence vote. Nicola Sturgeon is going to outline her timetable for a second vote in the coming weeks. Meanwhile 130+ business leaders have written to MP's demanding a people's vote to avoid a hard Brexit and to waste no time in calling it. The Telegraph says that Philip Hammond has told them that there is no threat of a no-deal and that could be taken off the table within days, potentially leading to Article 50 being rescinded.
In Europe; Sweden have managed to break a political deadlock following their elections back in September. The result put a far right part in third place, but with no clear winner. Now just about every other party has come together to keep the far right from any seat at the table. They'll now be led by a social-democrat PM.
Norway also managed to break some political deadlock yesterday and move from a minority to a majority coalition government, with the inclusion of the Christian Democrat party.
It's been a while since we spoke of steel tariffs, but since the US imposed a 25% tariff on steel imports it's taken Europe quite a while to work out how this effects them and respond accordingly. With the US a 'no go' zone for steel exporters, Europe has seen a lot of it dumped on them at prices that hurt domestic steel production. The EU has therefore decided to take a balanced approach and restrict imports to help steelmakers, but not to the extent that it's punitive to the auto industry. However...
Trump is considering new auto import tariffs in a bid to get the EU to the negotiating table. We'll know by mid-February, but those close to him think that he'll do it. A 25% import tariff on cars and car parts would cost the US consumer an extra $83bn a year collectively and also cost thousands of jobs. Reuters has the story.
The Fed has said that the burden of student loans in the states has hit the housing market as some 400,000 people have been prevented from buying a home because of their outstanding student loans. The US student loan debt pile is $1.5trillion across 44 million borrowers - an average of $37k per head.
On the shutdown; it's now close to a month long and still shows no sign of being solved. The House passed a plan to get things back open, with very little Republican support, but because it doesn't have funding for the wall in its plans, Trump is unlikely to approve it. There's a great FT article that talks about the direct and indirect economic effects of the shutdown, which is worth a few minutes. Jamie Dimon has also warned that if it continues, economic growth this quarter could be zero.
Today we'll be on Brexit watch, as well as looking at European inflation and US housing data - all riveting stuff.
Have a great day