With a relatively quiet day data wise yesterday markets were relying on global leaders to provide the action and they did not disappoint.
Former French Foreign Minister and EU Chief Negotiator Michel Barnier stated yesterday that he is ‘ready to improve’ the original proposal put forth by the EU. The main sticking point from the EU’s perspective continues to be the Irish border. With only weeks remaining until EU leaders are set to endorse a Brexit deal, Barnier said ‘What we are talking about is not a border, neither on land nor at sea. It is a set of technical controls and checks’. The current stance is strikingly different to the former standpoint of a hard border which was non-negotiable. The general change in rhetoric has been attributed by some to the fact the EU would rather have Theresa May at the helm as opposed to Boris Johnson, who in recent weeks has been mounting pressure on Theresa May in the UK Parliament.
Theresa May travels to Salzburg today to start a two day lunch with EU Commission President Jean-Claude Juncker and EU Council President Donald Tusk. May’s plan is to directly negotiate with EU leaders, cutting out Michel Barnier, with the hope of paving the way for the endgame in the Brexit negotiations. There are contradictive views with some EU leaders demonstrating strong support for Michel Barnier’s position throughout the negotiation’s with one EU diplomat calling the May’s move ‘reckless’ to undermine Barnier. However, an increasingly amount of confidence is being shown by both sides to strike a deal, demonstrated through Donald Tusk’s latest remarks of wanting to avoid the ‘catastrophe’ of a no-deal outcome.
Trump trudged on imposing more tariffs on $200bn worth of Chinese imports. The original duties were expected at 25% however it was released at 10%, some saw the reduced rate as a sign that the US were ready to open talks with China, especially as it was revealed there were various exemptions on the list of Chinese imports to be taxed, fearing the tariffs could affect the US economy. If offering a reduced rate was a tactic to lure President XI to the negotiating table, it hasn’t been a successful one. China remain adamant talks will not proceed whilst there is still action being taken to ‘squeeze’ the Chinese economy and have since imposed their own tariffs on the US with a 5-10% tax on $60bn worth of Chinese imports. Even though China will not be bullied in to making concessions, their hands are slightly tied with the current value of US exports to China standing at $130bn with Chinese exports to the US standing at over $500bn.
Today’s main drivers data wise come from the UK with retail price index, with month on month figures forecast to rise 0.5% to 0.6%. Followed by consumer price index which year on year figures are forecast to contract slightly by 0.1% to 2.4%. Any data releases are currently overshadowed by the progress of Brexit however coming into the final furlong of negotiations, data releases all be it positive or negative will be related back to the impact of Brexit, which could promote unwarranted strength or weakness for the pound.
To wrap the day up, Mario Draghi is set to speak this afternoon, markets will be keeping a keen eye on Draghi’s rhetoric to see if the hawkish stance from last week is set to continue or if he chooses to talk down the move to end monetary policy later this year. It will also be key to listen to any reference around the increasing government debt in the EU bloc, with Italy continuing to struggle to balance their books causing Angela Merkel and Emmanuel Macron to publicly comment on the budgeting laws within the EU and the tools they use to manage them.