The British with their Brexit will soon bring everyone to nervous exhaustion. At first, they happily said that the British government had finally signed an agreement on secession from the European Union, and at the beginning of the week they would put it to a vote in Parliament, but they did not have time to breathe a sigh of relief as Theresa May's opponents in Parliament, of whom there was a clear majority, made noise. Allegedly, the agreement that the prime minister intends to offer them is a betrayal of national interests, and instead they intend to consider the issue of a vote of no confidence of the Iron Lady herself - 2. From such statements, everyone immediately forgot about the vote on the agreement with Europe, which was immediately postponed. Moreover, the minister for Brexit affairs with his deputy, as well as Great Britain's minister of labour, who literally just about agreed to sign the proposed version of the agreement, resigned because of their disagreement with its provisions. Knowing the British and their love for all sorts of memories, we should soon wait for the publication of memoirs of retired officials, where they will be sworn to admit that Theresa May forced them to agree with the option of a terrible agreement with Europe. Probably threatened with a hot iron. Well, looking at all this, Donald Tusk said that the countries of the European Union will consider the issue of adopting an agreement with the UK only on November 25. Adding that if nothing happens, and also judging by the way political life is raging in the UK, anything can happen. At the very end of the week, Theresa May categorically rejected the idea of holding a second referendum, which further fuelled the situation.
The resignation of the two ministers immediately after the announcement of the agreement with Europe demonstrates that Theresa May is rapidly losing support. And for many it becomes dangerous to even be around her. Her political opponents have clearly targeted her political assassination, and given that they have a majority in Parliament, there is clearly every opportunity to do so. Although it is obvious that the UK's withdrawal from the European Union without any agreement will cause great damage to the United Kingdom. After all, Europe is the main trading partner for the UK. If British companies lose the opportunity to trade duty-free with the continent, as well as current tax benefits, they will instantly lose their competitive advantages and begin to suffer losses. But European companies will only benefit from this, as one of their competitors will simply withdraw. And this is reflected in the foreign exchange market, when under the influence of the same factors the pound became cheaper and the single European currency became more expensive. But British politicians put their political ambitions above economic expediency. After all, it will not be difficult for them to designate Theresa May as guilty in a subsequent economic catastrophe. They say that her inability to reach an agreement with Europe and defend national interests was the cause of the current difficulties.
Against the background of such a large-scale and high-budget show, respected TV viewers completely forgot not only about macroeconomic statistics, but also about the budget deficit in Italy, which again raised the issue of public debt in Europe. More precisely, the inability to do something with them. However, this issue was not considered, as the Italians were forced to sit at their desk and rewrite the budget for next year. So there was silence on this issue, because they were working on errors in Rome.
However, last week there were a lot of interesting statistics. In particular, inflation in the US accelerated from 2.3% to 2.5%, which finally dispelled any doubts about the further actions of the Federal Reserve System. The slowdown in inflation was not protracted in nature and turned out to be short-term, so the refinancing rate will definitely increase to 2.5% in December. Also, next year it will increase three more times, as much as to 3.25%. At least, so far nothing indicates that events will develop in some other way. Moreover, along with the growth of inflation, the growth rate of retail sales accelerated from 4.2% to 4.6%, which finally led to the enthusiasm of investors. Industrial production, which slowed from 5.6% to 4.1%, was the only one that managed to somewhat disappointed.
In Europe, inflation data were also published, confirming its growth from 2.1% to 2.2%, and this inspires hope that Mario Draghi will keep his promise and curtail the program of quantitative easing in December. Although another estimate of GDP for the third quarter once again showed a slowdown in economic growth from 2.2% to 1.7%, which does not particularly favor the tightening of the monetary policy of the European Central Bank. Certainly, and the hemorrhoids with debts of eurozone countries also do not really contribute to such a plot twist. The fact that the European economy is far from being in its best condition is clearly shown by the industry, whose growth rates are stable at around 0.9%.
To be honest, even without the titanic efforts of Theresa May's opponents, British statistics would have managed to weaken the position of the pound. The unemployment rate rose from 4.0% to 4.1%, inflation remained unchanged, and retail sales growth slowed from 3.3% to 2.2%. The picture is extremely sad. And even the acceleration of wage growth rates, taking into account premiums, and without them, is not capable of raising spirits.
Perhaps the first significant event that will have a serious impact on the foreign exchange market will be the meeting of the European Commission on the Italian issue. Rome has long stated that it cannot reduce the budget deficit. But few people remember that earlier Italian politicians openly stated that if the European Central Bank curtails the quantitative easing program, it will turn into an economic disaster for Italy. So if the European Commission allows Italy to violate the rules of the European Union, it will be a signal that Mario Draghi once again will not keep his promise and will extend the program of quantitative easing. But no less important is the fact that this arrangement will finally convince everyone that European countries are still not able to solve their debt problems, which will have a negative impact on the single European currency. And the consideration of the agreement between the UK and the European Union is likely to take place over the weekend, but it will still have a bad impact on the pound and the euro. Market participants are already uneasy, and this has a bad effect on business.
If we discard the political upheavals and look at the statistics, the beginning of the week is not so interesting. In the United States of America, almost no significant data are available. Thus, the number of building permits issued is expected to increase from 1,241 thousand to 1,269 thousand, as well as construction projects starts to rise from 1,201 thousand to 1,225 thousand. The number of initial claims for unemployment benefits may decrease from 216,000 to 215,000, and repetitive from 1,676 thousand to 1,625 thousand. But orders for durable goods may decrease by 2.5%, which, however, is quite correlated with the slowdown in industrial production. The forecasts according to preliminary PMI data are surprising. The fact is that business activity indices in both services and industry should remain unchanged. But the composite index, according to forecasts, can grow from 54.9 to 56.0. And it is not clear how this can happen.
In Europe, as mentioned earlier, an extremely important issue will be considered, which will almost certainly have a negative impact on the single European currency. After all, it is unclear what the European Commission will do if Italy refuses to reduce the budget deficit to the required level. That is, the situation is completely unpredictable. And this is always a negative factor. Also, the publication of preliminary data on business activity indices may provide a bearish service to the single European currency. In particular, the index of business activity in the service sector should decrease from 53.7 to 53.5, and in the manufacturing sector from 52.0 to 51.7. As a result, the composite index of business activity may decrease from 53.1 to 53.0. The only thing that somehow pleased the market participants is the data on the construction industry, the growth rate of which accelerated from 2.2% to 4.6%, which inspires hope that the industry will soon begin to revive. But there is too much negativity and uncertainty, so we should expect the euro to decline to 1.1350.
Britain and so on the knives, with all the tricks of the deputies. There is no faith that the Parliament will come to their senses and suddenly become filled with concern not for their political future, but for the whole country. So the likelihood of a positive completion of the epic "divorce" agreement tends to be at zero. And this alone will have a negative impact on the pound. Well, if it really comes to a vote of no confidence in Theresa May and her resignation, it would be appropriate to talk about the free fall of the pound. But this is a kind of force majeure. In addition, public sector borrowing is expected to increase by 5.4 billion pounds against 3.3 billion pounds in the previous month. That is not only because the UK is one step away from a political crisis with unpredictable consequences for the economy, but also the debt burden is growing. So the pound is likely to drop to 1.2700.
