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82 days after the triggering of Article 50, and the beginning of the UK’s exit form the EU, Brexit negotiations finally get underway in Brussels. Diplomats from both sides of the channel now have a little over 500 days until the EU’s head negotiator Barnier’s self-imposed November 2018 deadline for an informal deal to be reached.
However despite the tight timetable, talks are expected to be cordial as both teams meet face to face for the first time, breaking the ice before taking apart almost five decades of intertwined policy in the coming months. Policy-driven talk will unlikely begin this week as diplomats are introduced to their smaller ‘working groups’ where the finer elements of policy will be discussed at a later date, while agendas are set out for the major early agreements such as workers’ rights and the headline leaving bill for the UK. These deals are not expected to be made for several weeks.
Furthermore, the Queen’s speech, the event marking the official opening of Parliament, is set to take place on Wednesday, with negotiations between the minority Conservative government and Northern Ireland’s DUP ongoing. It is expected that a deal will be agreed to before the Queen’s visit to the House of Commons, although the delay adds another element of uncertainty into the talks in Brussels. This provides further reason for top level policy negotiations to be delayed until after introductions have concluded this week.
This explains why the immediate reaction to the beginning of talks has been particularly muted in foreign exchange markets. GBP/EUR, the pairing that is likely to reflect the mood of the ongoing talks over the coming weeks, has been the biggest mover and shaker over the course of the day, although it remains overshadowed by events of last week.
The start of negotiations come only a few days after UK Inflation reached a 4-year high of 2.9%, significantly above the Bank of England’s 2% target, which prompted three out of the eight Monetary Policy Committee members to vote to raise interest rates – the highest number in favour of a rate hike since 2011. The unexpected hawkishness helped Sterling rally from its post-election lows, although it still remains a way from its pre-exit poll highs.
With no major central bank meetings now coming until later July, investors will be carefully digesting policymaker speeches on offer throughout the week for an idea of the direction of monetary policies. Bank of England Governor Carney addresses Mansion House at a breakfast engagement on Tuesday morning, likely giving the speech that was postponed in light of the London tower block tragedy last week, while no less than eight members of the US Federal Reserve, four of which are scheduled to speak on Friday.
The macroeconomic data timetable this week is rather limited, with top tier releases not coming until the latter half of the week. Releases begin with US Existing Home Sales (Wednesday, 3pm), a closely watched indicator of economic strength, Eurozone Consumer Confidence (Thursday, 3pm), looking to build on last month’s 10-year high reading, and finally, a range of Manufacturing and Services PMI readings (Friday; European 8-9am, US 2:45pm).
Key data this week (Sign up here to receive our daily live macro-calendar)
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Intl Economic Announcements
07:00 Producer Prices (DE)
09:00 Current Account (EZ)
13:30 Current Account (US)
14:00 Leading Economic Index (CN)
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UK Economic Announcements
09:30 Public Sector Finances
Intl Economic Announcements
00:50 BoJ Minutes (JP)
12:00 MBA Mortgage Applications (US)
15:00 Existing Homes Sales (US)
15:30 Oil Inventories (US)
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UK Economic Announcements
11:00 CBI Trends
Intl Economic Announcements
09:00 Economic Bulletin (EZ)
13:30 Weekly Jobless Claims (US)
14:00 House Price Index (US)
15:00 Consumer Confidence (EZ)
15:00 Leading Indicators (US)
16:00 Kansas City Fed (US)
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Intl Economic Announcements
07:45 GDP (FR)
8-9am Manufacturing & Services PMI (European; various)
14:45 Manufacturing & Services PMI (US)
15:00 New Home Sales (US)
18:00 Baker Hughes Rig Count (US)
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