Australian economy contracts for first time since the global financial crisis
The Aussie dollar was one of the largest losers overnight as the Reserve Bank of Australia’s predictions of a slowing of GDP into the year’s end held true. GDP fell by 0.5% overnight, the first slump since the 2008 crisis, primarily as a result of a fall in government spending and surging imports. Should this economic weakness continue into Q1 and beyond, we could see the market begin to price in 50-75bps of further rate cuts before the year reaches its halfway point. AUD/USD fell over 0.5% following the GDP figures and it wouldn’t be surprising to see London and US traders punish the currency further today.
UK political machine jumps up a gear
The political machine in Westminster was running overtime yesterday, as both the government and the opposition look to save face and claim victory over today’s Brexit motion, due to take place in the House of Commons. The opposition claim that May and Co have folded under pressure and have now agreed to Labour’s demand for details on the government’s Brexit plan. However, there are no details or specifics in the amendment that bind May into divulging anything material, sensitive or significant at any point in the proceedings.
What has been agreed is that MPs will vote on the government’s intentions to trigger Article 50 by the end of March next year and begin the formal process of a departure from the EU. Most importantly, May won’t divulge any of the government’s strategy until after MPs have approved the March timeline. So, frankly, it appears the House of Commons is actually full of losers today, not winners, with very little concession emerging from either side.
The pound remained on the back foot yesterday, but falls were limited as the Supreme Court heard further evidence in the appeal for the government to hold a parliamentary vote on Brexit terms. The case against the government using the Royal Prerogative to trigger Article 50 appeared particularly strong. Nonetheless, we won’t see the outcome until approximately mid-January next year, by which point the government may have agreed to a vote anyway.
ECB expected to extend emergency treatment
The ECB meets tomorrow, and is expected to outline an extension to their asset purchase program of six months or so, keeping market volatility in the eurozone economy artificially subdued. ECB President Draghi’s reputation of surprising markets with a big ticket policy should keep a lid on the euro throughout today’s session, although data has been moving increasingly in the single currency’s favour over the past week or so. Yesterday’s German factory orders were a particular highlight, rising by 6.3% year-on-year, the fastest pace of growth in a year.
The calendar is relatively light today, but the Bank of Canada’s rate decision will draw some interest at 1500GMT.