Pound powers ahead

What a difference a day makes! This time yesterday morning it was all doom and gloom about Brexit – but this morning there is some light at the end of the tunnel perhaps compliments of Boris and Leo. Sterling has powered ahead as a result, strengthening to about 88.5p against the euro (from around 90p yesterday) and to $1.2450 against the dollar (from $1.22).  Meanwhile, the single currency is slightly firmer against the dollar, trading just north of $1.10

Bond yields in the core markets nudged higher again yesterday as equities advanced for a second consecutive session, with US 10-year yields rising by the best part of 10bps to close at 1.67% and equivalent German and UK yields increasing by about the same to -0.48% and 0.58% respectively

Following what they described as ‘constructive’ talks between them, UK Prime Minister Boris Johnson and Taoiseach, Leo Varadkar said they could now see “a pathway to a possible (Brexit) deal”. with the latter subsequently adding that he’s “now absolutely convinced that both Ireland and Britain want there to be an agreement that’s in the interests of Ireland and the United Kingdom and the European Union as a whole, and I do see a pathway towards an agreement in the coming weeks” (while cautioning that “there is many a slip between cup and lip” and, in that regard, any deal would have to get through the UK parliament where the arithmetic facing the Government is challenging)

The EU chief Brexit negotiator Michel Barnier and UK Brexit Secretary Stephen Barclay will meet in Brussels this morning and, following yesterday’s meeting, it is hoped that the two sides will move into intensive negotiations to try to secure an agreement, perhaps in the time for the European Council meeting on 17th-18th October

The UK economy contracted slightly in August according to the latest monthly GDP data. However, looking through the usual volatility in the monthly numbers, the economy actually grow by 0.3% over the three months to August (compared to the three months to May) driven by a pick up in services sector activity

The account of the ECB’s meeting in September released yesterday showed all members agreed that a ‘further easing of the monetary policy stance was warranted’, with a ‘clear majority’ of members agreeing to restart net purchases and ‘a very large majority’ agreeing to lower the deposit rate (which was cut by 10bps to -0.50%)

Data due today include consumer confidence and import prices in the US