Brexit Talks Resume

Daily Analysis - 10/11/2017

Theresa May Warns Rebels


Negotiators from the UK and the European Union met in Brussels on Thursday for the latest round of Brexit talks as the two sides remain deadlocked over the final cost of the divorce. Meanwhile, British Prime Minister Theresa May, writing in the Daily Telegraph, has warned fellow members of parliament that she will not "tolerate" any attempt to block a deal.

UK’s May to Restate Desire for Brexit Transition Deal

The UK is offering €20 billion as divorce settlement while Brussels continues to demand a financial payment which could be as high as €60 billion. Round six of negotiations began on Thursday is likely to keep focussing on the financial commitments, the future of British and EU citizens living abroad in the face of probable immigration changes, and the status of the border between EU member Republic of Ireland and Northern Ireland.

UK Brexit Secretary David Davis insisted that steady progress has been made behind the scenes, and reiterated his country’s commitment to "safeguarding the rights of EU citizens" living in the UK after it leaves the currency bloc.

Elsewhere, Prime Minister Theresa May will repeat her demand for a two-year Brexit transition period when she interacts with European business chiefs on Monday per an official release.

After a sharp dip on Thursday, FTSE 100 futures have bounced modestly to around 7475 in early Friday trade.


Mexican Central Bank Holds Rates Steady

Banxico cited inflation risks as it kept its borrowing costs steady late Thursday, saying it was imperative to persevere a prudent monetary policy stance in the face of multiple risks, including trade with the United States. As was widely anticipated, the Banco de Mexico’s board voted to keep the benchmark interest rate at 7.00%.

The latest rate decision was outgoing Governor Agustin Carstens’ final policy action before parting with the position after almost eight years. The outlook for the Mexican economy has been clouded by the ongoing North American Free Trade Agreement renegotiations between the United States, Canada, and Mexico.

US President Donald Trump has threatened to scrap the accord if he cannot recast it in his country’s favour.

Meanwhile, the USDMXN pair has been stuck with a narrow range around 19.0200 in early Friday trade.


Natural Gas Soars on EIA Report

The Energy Information Administration released its weekly Natural Gas Storage Report on Thursday, outlining the jump in US natural gas stocks during the prior week. According to the EIA, domestic natural gas supplies increased by 15 billion cubic feet (Bcf) during the week ended November 3rd, rising from 3775 Bcf to 3790 Bcf. The figure was 5.50% below the 4009 Bcf that was recorded in storage during the corresponding week in 2016, and 1.80% below the five-year average of 3861 Bcf.

However, last week’s storage build exceeded market expectations, beating the consensus estimate of analysts surveyed by S&P Global Platts forecasting a 12 Bcf rise. December natural gas futures surged 0.70% to finish Thursday at $3.208 per million British thermal unit.

Futures have been rallying since the EIA cut its 2017 natural gas growth outlook in a monthly report released on November 7th.


German Trade Surplus Fails to Halt DAX Slide

Germany’s trade surplus widened in September amid declines in both imports and exports.  Data from Destatis unveiled on Thursday showed that seasonally adjusted, outbound shipments fell by -0.40% on the month, while inbound shipments slumped -1.00% in September.

This left the country’s adjusted trade surplus at €21.80 billion ($25.30 million), marginally higher than the €21.30 billion recorded in August. A Reuters poll had projected exports to decline by -1.10% and imports to rise by 0.30% during the period. The blue-chip DAX 30 equity benchmark lost ground in the previous session despite the surplus print.

December futures slipped -1.50% amid a sharp rise in government borrowing costs. Analysts also attributed yesterday’s equity selloff to a technical pullback following the steep rise to record territory earlier in the week, with futures since recovering modestly and rising back towards 13200.


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