Market News & Insights
3 October 2018

Trump 2.0

It’s often difficult to comprehend the political environment we find ourselves in. Opening the weekend papers over the past month and you would have found yourself gazing at a giant balloon of London Mayor Sadiq Khan in a bikini or at an image of Boris Johnson running through a field of wheat. Yet this sort of slapstick style front is the political environment we are constantly facing.

Boris Johnson hosted a fringe event at the Conservative party conference yesterday where he laid out his Brexit afterlife which included a low tax, higher spend and pro-business economy, Trump 2.0. His discontent for the current Chequers proposal will no doubt sends a weary message to EU leaders with Boris the bookies favorite to succeed Theresa May and becoming the next Prime Minister. The current PM, Theresa May, will speak later at the Conservative Party conference where she will no doubt use it as a platform to attack her rivals. She may also use it to try strengthen their position with DUP leader Arlene Foster, who yesterday threatened to pull the plug on May’s government over the NI border. The pound will remain vulnerable to Brexit related comments and the wavering political stability of the Conservative party. The pound also remains vulnerable to economic data, yesterday it slipped back after the latest UK construction PMI for September showed that economic activity slowed to its lowest level since March at 52.1. This morning we had Services PMI out where the figure came in slightly below market expectation at 53.9. GBPUSD slipped below 1.30 in yesterday’s trading session but failed to hold this level as it trades just above this level. GBPEUR continued to trade in a tight 50bps range yesterday, with today’s release changing very little here.

Over in Italy where the political landscape is also causing some major headaches for the EU. The situation threatened to escalate into a Greek style crisis with Claudio Borghi, head of the lower house budget committee even stating the euro was “not sufficient” to solve Italy’s fiscal issues. Italian Prime Minister Conte later stated that the euro was irreversible and Italy had no plans to leave. This morning across the wires we had reports from two papers stating that the populist government had reversed their previous stance on amending its budget deficit figure. The article states that the government were willing to bow to European Union pressure and willing to reduce its budget deficit targets for 2020 and 2021. Euro reacted positively to the news jumping 50bps against the dollar to just below 1.16.