Pound Unchanged as EU leaders Agree Brexit Divorce

The pound was edging cautiously higher in early trading on Monday, after EU leaders signed off on the Brexit divorce deal. The 27 leaders endorsed the deal, as expected. However, stark warnings that there is no “plan b” should the UK Parliament reject the deal unnerved pound traders. Whilst the EU leaders agreeing to the deal is a step in the right direction, pound traders are painfully aware that the main hurdle will be pushing the deal through Parliament when MP’s vote on it in 2 weeks’ time. The fact that the pound has made little headway this month despite the Brexit package being agreed, reflects the underlying concern that there is a good chance that the UK Parliament will reject the deal.

Theresa May faces an uphill struggle as a two-week hard sell on her deal begins. We are expecting Project Fear part II from Theresa May and co. which will keep any gains in the pound limited. Today, May will convene her cabinet, so far many of her Eurosceptic ministers have failed to endorse the deal publicly. Pound traders will be watching closely to see if Theresa May can instigate a change in those Eurosceptic ministers, which could give an early indication as to her chances of swinging round other rebel Conservatives.

Black Friday optimism overshadows trade tensions ahead of G20

Global stocks and futures posted modest gains as trading kicked off on Monday. Hopes of high consumer spending and strong Black Friday/Cyber Monday sales boosted optimism. Sales this weekend can give struggling retailers a strong start to crucial holiday trading. However, investors were also exercising a level of caution. Trade tensions and global growth promise to remain prominent themes ahead of President Trump and China’s President Xi meeting at the G20 at end of the week. The pair are expected to hold side-line talks at the summit. In the weeks leading up to the meeting between the two powers, there have been few if any signs of trade tensions thawing. This makes any serious progress highly unlikely.

Without serious progress in trade talks, US Trade tariffs on $200 billion of goods will increase to 25% in the new year, up from 10% now. Cracks are already starting to show in the global economy as concerns of slowing global growth is affecting everything from oil prices to business investment to corporate earnings. This will only intensify next year if no solution to the China US trade war is found.

Euro higher ahead of business sentiment data & Draghi

The euro was trading marginally higher after a heat sell-off on Friday. Friday’s weaker than forecast PMI data fanned fears of slowing growth momentum in the bloc. Today investors will look towards IFO business sentiment index for further clues. The index is expected to show further weakening of sentiment in November. Traders will then look to an appearance by Draghi to see whether the recent slew of softer data will deter the ECB from halting its asset purchase programme next month.