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Brexit Talks Begin Again as Proposed Changes To Northern Ireland Protocol Supports Sterling

Inflation Pressures Keep The US Federal Reserve (Fed) On Track For 2022 Rate Hike

The US Consumer Price Index (CPI) rose by 0.4% in September as rising food and energy prices pushed the price index to around its highest annual increase in 13 years. On an annualised basis prices have risen by 5.4%, slightly above the forecast of 5.3%. Economists have debated at length as to whether the current pace of price increases will shift to broader more persistent inflation concerns. Fed Chair Jay Powell has commented that inflationary pressures are expected to subside over time, although acknowledging that global supply chain bottlenecks threaten broader inflation. The market reaction saw the Dollar weaken against most major currencies with US Treasury yields pushing lower.

The minute’s report from the FOMC’s September meeting revealed the Federal Reserve are on track to begin tapering in November or December. Members of the committee commented that if a decision to begin tapering occurred at the next meeting, the process of tapering could commence with the monthly purchase calendars beginning in either mid-November or mid-December.

Today the market’s attention will turn to initial jobless claim data and September’s Producer Price Index (PPI) figures on an otherwise quiet economic calendar.

Proposed Changes To Northern Ireland Protocol Supports Sterling

Economic data was released this morning with the latest monthly UK GDP data recording a 0.4% increase, slightly below expectations whilst manufacturing and industrial production beat expectations. Sterling overall was held in relatively tight ranges as the market continues to articulate what happens next with interest rates and the potential impact on the wider economy.

There were some positive developments on the Brexit tensions as the EU confirmed that it proposes major changes to the Northern Ireland protocol with the potential for most checks on British goods scrapped. This could help improve Sterling sentiment, but negotiations are expected prolonged.

Economic data is light today, but two members of the Monetary Policy Committee are due to speak and as a result, will be watched closely for clues on interest rate policy.

Let The Brexit Talks Begin…Again

The EU revealed their new four-pronged plan to reform the Northern Ireland protocol yesterday during a press conference with Maros Sefcovic. The plan includes four key pillars: customs, sanitary and phytosanitary requirements, medicines, and democratic oversight.

To summarise briefly, the reform aims to vastly reduce the customs controls of goods entering Northern Ireland from the UK by utilising real-time data to monitor the flow of goods. It is expected that this will reduce the current paperwork needed by more than half making exporting goods to Northern Ireland more viable for mainland UK businesses. In addition, the EU has proposed a reduction in the checks required to export meat and plants by approximately 80 per cent, to avoid another sausage war.

Britain will also be granted approval to continue to supply cheap medicines to the region without having to relocate functions to the European bloc, as the EU currently dictates. Finally, the EU has proposed the implementation of forums with Northern Irish stakeholders to open dialogue with the aim of continued transparency to avoid any future hard borders in the region.

Negotiations between the UK and EU are due to start today with further news flow expected as developments unfold. Political headlines proved to be a mover for the Euro during Brexit negotiations so we might see some direction for the single currency today.

Looking ahead at today, it is another very quiet day on the macro-calendar. We are due to hear from several European Central Bank (ECB) speakers, most notable being Knot mid-afternoon. His speech will be closely watched as markets look for any indication of near-term policy tightening.

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