Irish border obstructs Brexit progression

Hopes of an early-morning Brexit breakthrough have been dashed, with discussions over an Irish border resolution seemingly no closer to a resolution. With Theresa May heading to Brussels, there was clearly a high degree of expectations that we would see a breakthrough today. However, with the UK wishing to move onto the trade negotiation phase without giving any certainty on the Irish border issue, it is clear that the Irish government has no such plan to allow easy passage over this issue. With the pound tumbling in response to this morning’s Irish Brexit roadblock, we are seeing the FTSE 100 gain ground, responding to the pound devaluation rather than the negative economic consequences of further delays to trade negotiations.

US markets are expected to lead the way once more today, with the weekend Senate vote clearing out yet another hurdle amid a massive push towards a pre-Christmas agreement. Friday’s focus on Michael Flynn largely overshadowed the progress being seen on the tax reform side, with the dollar and stocks suffering amid fears that Flynn could provide incriminating evidence against the Trump administration. Instead, we are seeing the markets focus back onto the tax reforms issue, with Republican Senator David Perdue indicating that the bill could be on Trump’s desk within 10-days.

The UK construction sector has sprung back into life, with the latest PMI data seeing output rise at the fastest rate in five-months.  Interestingly, the benefits of this recent construction rebound appear to be confined to the residential sector, with commercial building and civil engineering continuing to decline. Coming off the back of Friday’s manufacturing PMI outperformance, there is a growing feeling that the services sector could similarly outperform tomorrow. However, with markets instead choosing to focus on the inability of to find a resolution to the Irish border issue, it seems investors are looking elsewhere for now.

Ahead of the open we expect the Dow Jones to open 189 points higher, at 24,421.