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GBPUSD closed around 1.2854 in the U.S. session Monday, surged almost +0.47% on hopes of a clear majority for British PM Johnson in the Dec Brexit election as Nigel Farage withdrew candidates against Conservative stronghold; positive British GDP growth for Q3 also helped the British pound and it jumped to the session of 1.2896.
On Monday, in a major surprising U-turn, the original poster boy of Brexit and a headline Leaver (Brexiteer) Nigel Farage of ‘Brexit party’ has confirmed his party will not contest against Johnson’s Conservative candidates in those seats, where the Tories (Conservative party) won in 2017 snap poll under the then British PM Theresa May. Farage said his party will instead focus more on efforts to defeating Labour and other Remainers (anti Brexiter) parties (like LDP, SNP). GBP jumped as this may be a major boost to Boris Johnson's hopes of winning a clear majority, positive for a smooth and soft Brexit on 31st Jan’2020 (with a deal).
But there are considerable doubts about the actual boost of Johnson’s electoral prospect as various British political experts do also think that it may further mess up Johnson’s prospect by dividing crucial Tory block votes and also split Leavers; i.e. in brief, Farage’s sudden withdrawal from Tory seats may not be a big game-changer for the Dec election.
On Monday, Farage said it was “not easy” to drop his promise to fight 600 seats at next month's election but admitted that it could bring another hung Parliament and his priority was to ensure that Brexit was delivered. He said he would concentrate the party’s efforts in Labour seats, although that could even split Leave votes in seats targeted by Johnson.
Full test of Farage’s speech:
“Good morning--everybody. I think this has been quite a long-anticipated speech from what I can gather; acres of speculation about what our general election strategy is going to be. Well, in the next few minutes, all will be revealed.
We are three and a half years on from that referendum when we all thought we’d done it, didn’t we? We all thought we’d beaten the establishment and we were about to become an independent country.
Three and a half years of delay; three and a half years of a Remain Parliament; a total sellout of Brexit from Mrs. May and from the Labour Party a complete betrayal of five million of their own voters who voted Leave in that referendum, and they promised they would respect that vote.
And so I suppose in some ways, it was no surprise that when a new Prime Minister, Boris Johnson – one with, shall we say, slightly more optimism and energy than his predecessor? – When he went along to that European summit and the backstop was removed, he cried victory. And I think, exhausted Brexiteers – ‘Brexhaustion’ I think is the phrase – said ‘well, if we’ve got a good deal, isn’t that just fantastic?’
I have to say, I was very, very unhappy with this new EU Treaty with the attached Political Declaration. And I noticed in the days that followed on that unlike many of those who voted for it – and unlike many of those who praised it, and are still today praising it – And I noticed in the days that followed on that unlike many of those who voted for it – and unlike many of those who praised it, and are still today praising it – I actually read it. And I drew the conclusion that it simply wasn’t Brexit. There were many, many concerns. I think the separate status for Northern Ireland and what that might mean for the Scottish debate in years to come and for the Union was part of it. There were many, many concerns. I think the separate status for Northern Ireland and what that might mean for the Scottish debate in years to come and for the Union was part of it. I didn’t like the binding commitments for state aid rules, which meant we couldn’t, for example, take a strategic decision about an industry like steel. I certainly, having read the text on fishing, realized that it was not going to deliver 200 miles of the North Sea here in the North East of England. There were many, many concerns. I think the separate status for Northern Ireland and what that might mean for the Scottish debate in years to come and for the Union was part of it. I didn’t like the binding commitments for state aid rules, which meant we couldn’t, for example, take a strategic decision about an industry like steel. I certainly, having read the text on fishing, realized that it was not going to deliver 200 miles of the North Sea here in the North East of England.
So there were many criticisms that I had of it. But there were two aspects of it that really did stand out for me as being completely unacceptable. The first was that it just did not get Brexit done. It’s a very tempting phrase, isn’t it? ‘We’re going to get Brexit done.’ I mean, who wouldn’t on the Brexit side of the argument and indeed many on the Remain side of the argument, who wouldn’t cheer this coming to a conclusion as quickly as possible? But actually, all these documents do is take us into another set of agonizing negotiations and ones in which there is no question the EU will have the upper hand.
Monsieur Barnier, who of course negotiated for the EU in the last three years, who did such a good job – he’s now being recruited by the European Union to do the next phase. Well, we should poach him really because he’s rather better than our people have been, and he’s already said that the trade negotiation will last for three years or more. who of course negotiated for the EU in the last three years, who did such a good job – he’s now being recruited by the European Union to do the next phase. Well, we should poach him really because he’s rather better than our people have been, and he’s already said that the trade negotiation will last for three years or more. So it doesn’t, as it stands, get Brexit done.
But the area that really worried me the most was the extent to which we were committing ourselves to regulatory and political alignment. We were binding ourselves in an international treaty to having parallel laws on everything from financial services to fisheries, even taxation. We would not be completely free to set our own rates of VAT or indeed corporation tax. We were binding ourselves in an international treaty to having parallel laws on everything from financial services to fisheries, even taxation. We would not be completely free to set our own rates of VAT or indeed corporation tax. And I said to myself when I looked at that, this really is not Brexit, this is not taking back control; this is not the ability at general elections to choose governments that decide what course of action, what policy areas we choose.
And that’s why the national nominating officer for the Brexit Party last week signed 600 candidate forms because I felt that in a democracy everybody deserved to have a genuine choice. But the difficulty with that is weighing up what would the consequences be in this election of us fielding that number of candidates. And this has not been easy. Everybody speculated that it would allow Corbyn to win. I don’t believe that. But what I do understand fully is that if we do field 600 candidates, there will be a hung parliament: I think that is by far the most likely outcome, which I think is something that very few people really want.
I also realized over the last few weeks – and we saw this through our own private polling – that if we did put up candidates, I had absolutely no doubt that from South West London, down into Hampshire, and right out through the Western corridor all the way to Land’s End, I had absolutely no doubt that from South West London, down into Hampshire, and right out through the Western corridor all the way to Land’s End, that the effect of our standing would be quite a large number of Liberal Democrat gains.
So the real concern about that is: what would happen if the Remianer parties could get between them 325 seats in Parliament? Well, we know what would happen. There’d be a second referendum. And so that has been a very real concern for me and I think if there was a second referendum, it would be disastrous for trust in our entire democratic system, disastrous for business, for investment into our country. And also I know that what we’d get offered is a false choice between Remain or a form of Remain.
So after 25 years of battling for us to be free of the European Union, 25 years of wanting us and believing that we should be an independent country, it’s not been very easy. I’ve tried over the course of the last few months, as you know, to build a Leave Alliance. And I knew that between us, the Conservatives and some leading Labour figures that that could have been done. I’ve tried over the course of the last few months, as you know, to build a Leave Alliance. And I knew that between us, the Conservatives and some leading Labour figures that that could have been done. I genuinely tried for months to put about the idea that putting the country before the party at a moment like this is the right thing to do. But that effect has come to naught.
So it’s been very, very difficult, and one or two have noticed my silence over the last few days. It’s been a difficult decision to make, but I have to say that last night, for the first time It’s been a difficult decision to make, but I have to say that last night, for the first time I saw something since that Brussels summit that actually was optimistic; because I saw Boris Johnson on a video saying ‘We will not extend the transition period beyond the end of 2020’. And that, in many ways, a direct challenge to Mr. Barnier that would need a change to the Political Declaration before all of this gets ratified in Parliament.
Now you may well say to me, isn’t this same Boris Johnson who said he’d die in a ditch rather than extend from the 31st October? And yes, the issue of trust, the issue of delivery is a very real one and I’ll come back to that perhaps in a few moments’ time. And yes, the issue of trust, the issue of delivery is a very real one and I’ll come back to that perhaps in a few moments’ time. But at least it was a clear, unequivocal statement from him that we’re not going on beyond the end of 2020.
But much more significantly – and really quite unreported on so far today – he said something else that really did matter to me, hugely. He said we would negotiate a trade deal, a Super Canada+ trade deal with no political alignment. Now, that is a huge change because ever since Mrs. May’s abject speech in Florence, we’ve been aiming at a close and special partnership with the European Union. We’ve been aiming actually to stay part of many of its agencies and Boris last night did signal a very clear change of direction.
And I thought to myself overnight, well that actually sounds a bit more like the Brexit that we voted for: trade, cooperation, reciprocity with our European neighbors is what we all want. We all want to get on well with our next-door neighbors. What we don’t want is to be part of their political institutions and if the Prime Minister is saying he will make sure we are not part of political alignment, I think, is a significant step in the right direction.
So, last night, I weighed up Boris’s promises and is he going to stick to them against the threat, particularly in the South and the South West that we let in a lot of Remianer Liberal Democrat MPs. So the reason I was quiet is I waited until last night to decide. And I will tell you now exactly what we are going to do.
The Brexit Party will not contest the 317 seats the Conservatives won at the last election. But what we will do is concentrate our total effort into all of the seats that are held by the Labour Party, who have completely broken their manifesto pledge in 2017 to respect the result of the referendum. And we will also take on the rest of the Remianer parties; we will stand up, and we will fight them all. So we’re not going to fight 600 seats.
I have to say, I’m pleased you like it. It’s not easy. It’s not easy. But how do we hold Boris to his promises? That’s the key to this, isn’t it? That’s the key to whether this strategy actually works. We will expose the fact of Labour’s complete betrayal of 5 million of its own voters. I think that’s a very, very important thing for us to do.
I think it is also fair to say that the London-dominated Labour Party is now thousands of miles away from its traditional safe seats, many that it’s held since 1918. And that it actually is the time for seismic change in many of these constituencies and I think there’s a Labour audience out there waiting for that message, waiting to think there is somebody who’s actually on their side, waiting to find a party that believes genuinely in investing in the regions, waiting for a party that says we actually need in our country to have sensible immigration controls and not an open door to everybody.
These I think are the messages that will resonate hard in these Labour areas and you can absolutely rest assured that the people we’re putting up for the Brexit Party to stand in all of these seats are genuine and true. They’re doing it not because they want a career in politics; they’re doing it because they genuinely want to make a difference to our country.
And the way that we keep Boris Johnson to his promises, is we have to start to win some of these seats, that’s what we need to do in this election. Because when we do that, we have a Brexit Party voice in Parliament. We’re going to keep saying: remember you told us we were leaving by the end of 2020; remember you told us we’re not going to have political alignment. And actually, he’ll know, just as Mrs. May’s vote disappeared in the European elections of this year, the same will happen again if a British Prime Minister breaks firm commitments and promises that are made to the British people.
I have got no great love for the Conservative Party at all. But I can see right now that by giving Boris half a chance, by keeping him honest and holding him to account by getting people in, and by stopping the fanatics in the Liberal Democrats who’d sign us up to everything, wouldn’t they, the United States of Europe, European army, you name it, I mean they even want to revoke the result of the referendum. But I can see right now that by giving Boris half a chance, by keeping him honest and holding him to account by getting people in, and by stopping the fanatics in the Liberal Democrats who’d sign us up to everything, wouldn’t they, the United States of Europe, European army, you name it, I mean they even want to revoke the result of the referendum. No, I think our action, this announcement today prevents a second referendum from happening and that to me I think right now is the single most important thing in our country.
So in a sense, we now have a Leave Alliance. It’s just that we’ve done it unilaterally. We’ve decided that we absolutely have to put the country before the party and take the fight to Labour. Thank you very much indeed, everybody, thank you”.
Basically, Farage believes that the present deal by the British PM Johnson is not perfect and Leavers did not vote for such Brexit, which may be in the ‘name only’. But still, Johnson’s deal is a step in the right direction including his commitment to finishing the actual trade deal negotiated with the EU within a very short time so that Britain could finally leave the EU by Dec’2020 without any extension.
So Farage is withdrawing his 317 candidates from Conservative winning seats in 2017 and instead, Farage will focus on contesting in Labor seats to ensure Labor defeat, a simple majority for Johnson’s Conservative party, no hung Parliament and no 2nd Brexit referendum. Farage also vowed to act as a ‘constructive’ opposition against Johnson in the British Parliament post-Dec election to ensure that Johnson keeps all his Brexit promises including the end of the transition period by Dec’2020.
As per reports, before pulling out against Johnson, Farage tried his best for a ‘Leave alliance’; but that failed. Also, his Brexit Party candidates were already demoralized as various opinion polls are showing zero seats for the Brexit Party in the Dec election and their leader (Farage) will also not contest from any seat. Thus, it may be a face-saving exit for Farage from the crucial Brexit election in Dec, which is now turning into a de-facto 2nd Brexit referendum.
After Farage’s withdrawal, Johnson said in a tweet: “Only a Conservative majority can get Brexit done by the end of January with a deal that's agreed and ready to go: We welcome Farage's recognition that another hung Parliament is the greatest threat to getting Brexit done. If we have another hung Parliament it would lead to two more chaotic referendums next year. Only a Conservative majority can get Brexit done by the end of January with a deal that's agreed and ready to go: We welcome Farage's recognition that another hung Parliament is the greatest threat to getting Brexit done. If we have another hung Parliament it would lead to two more chaotic referendums next year. The Conservatives only need 9 more seats to win a majority and leave by the end of January with a deal. We can then finally move on as a country, and focus on the priorities that matter to you and your family”.
In an official response, the Labour Party said the Farage move was a strategic step towards selling off the U.K. NHS to U.S. MNCs: “This is a Nigel Farage and Boris Johnson alliance with Donald Trump to sell out our country and send £500 million per week from our NHS to US drugs companies. We urge voters to reject this Thatcherite 1980s tribute act, which would lead to more savage Tory attacks on working-class communities. Our NHS is not for sale”.
The Labor leader Corbyn tweeted: “One week ago Donald Trump told Nigel Farage to make a pact with Boris Johnson. Today, Trump got his wish. This Trump alliance is Thatcherism on steroids and could send £500 million a week from our NHS to big drugs companies. It must be stopped”.
Later, referring to Johnson, Farage said: “The strategy is we have to be a powerful enough political party, winning some of these seats to get into the House of Commons, and he’ll know if he’s like Mrs. May he completely breaks them… Brexit means Brexit and all this stuff… and then we saw that dreadful treaty, he knows that if he backs down significantly from this, the Brexit Party will pose him a major threat. Look, honestly, if he does what he said last night, we’re going to get something that looks like Brexit. Mr. Trump’s real fear would be that if the Lib Dems had a huge surge, and if the SNP do the same thing they might in Scotland, do you start to get to a situation where you might have a majority in Parliament for a second referendum”.
There were some calls from Conservative/Brexiteers supporters that Farage should also withdraw from the 59 seats that the Tories could win with a straight 5% swing from the winner in the 2017 general election. When asked, Farage said: “I haven’t even considered that at this moment in time. I’ve just taken 48 hours to make this decision. Allow this one to settle first”.
Now from politics to economics, on Monday data shows that the U.K. GDP grew at +1.0% in Q3 from prior growth of +1.3%, lower than the expectations of +1.1% (y/y). On a sequential basis (q/q), in Q3, the British GDP grew at +0.3% from the prior contraction of -0.2%, lower than the expectations of +0.4%.
The Q3 British GDP growth was the slowest in a decade amid lingering Brexit uncertainty affecting business activity, but Britain avoided a technical recession of two consecutive quarterly GDP contractions, thanks to still robust British service sector, especially British TV and film industry, coupled with higher spending on IT/techs as it accelerated as firms upgraded their computer systems and improved online services to their customers.
Overall, the service and construction sectors provided positive contributions to GDP growth, while output in the production sector was flat in Q3-2019. Private consumption, government consumption, and net trade contributed positively to GDP growth, while gross capital formation (GCF) contributed negatively to growth in Q3-2019. Exports surged 5.2% quarter on quarter while imports only increased by 0.8% to leave net trade up 1.2%. However, the ONS said it was concerned about the accuracy of the data after ‘external evidence pointed to weaker export growth than shown in the official estimates’.
Home-building companies benefited from a rise in public sector housebuilding and a mild recovery in new orders for commercial work. Overall the construction industry grew by 0.6% in the three months to September. Business investment was the main drag on growth during the quarter after manufacturers cut back on upgrades to factories and purchases of new equipment.
ONS said: “The output measure of gross domestic product (GDP) grew by 0.3% in Quarter 3 (July to Sept) 2019. This followed a period of increased volatility in the first half of the year relating to the UK’s original planned exit date from the European Union, likely reflecting the effects of bringing forward activity in the first quarter of the year and the decline in car production owing to partial car plant shutdowns in April. This has been most evident in the quarterly movements in manufacturing output in Quarter 2 (Apr to June) 2019, which saw a fall of 2.8%”.
“Manufacturing was flat in Quarter 3 2019, as was production. Services output increased by 0.4% in Quarter 3 2019, following the weakest quarterly figure in three years in the previous quarter. Construction output experienced a pickup following a weak Quarter 2, increasing by 0.6%”.
The Chancellor of Exchequer, Sajid Javid said: The GDP figures were a welcome sign that the fundamentals of the UK economy are strong”.
On early Tuesday, GBPUSD made a session low of 1.2816 but slightly recovered after mixed U.K. jobs report. The U.K. wage grew at +3.6% in Sep from prior +3.7% (revised downwards from +3.8%), lower than the expectations of +3.8%. The U.K. claimant count change (unemployment claim) surged to 33.0K in Oct from 13.5K, higher than the expectations of 24.2K. But employment change reduced by -58K in Sep (3M) from prior -56K, higher than the expectations of -94K. And the Sep British unemployment rate dropped to 3.8% from prior 3.9%, lower than the expectations of no change at 3.9%.
In any way, even around 3.5% average British wage growth and headline inflation (CPI) around +1.7%, the U.K. real wage growth is now around +1.8%, positive for the consumer spending, despite Brexit fatigue and subdued forward-looking job market indicators. The 58K fall in employment in Oct was led by lower aged (18-24 years) part-time workers, which may be a function of seasonality. Overall, the job data may not change the current BOE ‘neutral’ stance in the coming days.
Looking ahead, despite Farage drama, Britain may face the risk of a hung parliament and Brexit deadlock again. And even if there could be a clear majority for Johnson, going forward, Brexit may be the just a beginning of a more protracted negotiation process of a trade deal with the EU and also with other countries/trading blocks. There may be also some limitations for Britain for a fair trade deal with other countries/trading Blocks under the current Brexit accord (as Trump already observed). This could be negative for British economic growth and fiscal discipline, inviting further rating downgrade.
We could see more political drama from Farage in the coming days-whether he withdraw his candidates further from the other 59 seats, which are very close (less than 5% difference in 2017). This is crucial for Johnson as irrespective of Farage withdrawal, Conservative was poised to win in those 317 seats, but at the same time, it would need to win at least 9 seats from the other 59 potential seats. And it now seems that if Farage concentrates on those 59 seats, it could split Leave/Conservative votes further; paving the way for an eventual British hung Parliament. The other prominent British opposition parties (LDP, SNP) have said that Farage’s decision confirms that the Conservative party is becoming the Brexit party, which may also damage Johnson’s (Tory party) image.
Technically, whatever may be the narrative, GBPUSD has to sustain over 1.30200 for a further rally to 1.30500*/1.30900-1.31700/1.32000* and 1.32700*/1.33100-1.33500/1.33800* and further 1.34000/1.34700-1.35000/1.36200* in the near term (under bullish case scenario).
On the flip side, sustaining below 1.30100-1.29800, GBPUSD may fall to 1.29100/1.28700-1.28100/1.27500* and 1.27000/1.26500*-1.25800/1.25000* in the near term (under bear case scenario).
Note: Now GBPUSD (1.27730) has to stay above 1.27500; otherwise it may fall further as per the above levels. For any further rebound, it has to sustain above 1.29100.
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