The British pound has posted slight losses in the Monday session. In North American trade, GBP/USD is trading at 1.3318, down 0.18% on the day. On the release front, British Manufacturing Production declined 1.4%, well off the estimate of 0.3%. Britain’s trade deficit widened to GBP 14.0 billion, above the forecast of GBP 11.5 billion. There are no major U.S. events on the schedule. Tuesday will be busy, as the U.K. releases wage growth and unemployment claims. The US will publish CPI reports.
The markets were braced for a bumpy meeting between the Group of Seven leaders on Friday, but the sharp disagreements between President Trump and the other six members were far worse than expected. Trump openly clashed with the other leaders over his recent tariffs against the European Union and Canada and pulled back his endorsement of the traditional post-summit statement put out by the other members. The undiplomatic Trump also tweeted that Canadian Prime Minister Trudeau, who hosted the summit, was “dishonest and weak”. Canada and the EU are furious over recent US tariffs, especially because of Trump pushed them through on the basis of ‘national security’. The glaring cracks in G-7 unity could cast a long shadow on trade relations between the U.S and the “G-6”, with business confidence and capital spending at risk if the tariff spat continues. Trump has not slapped tariffs on Japan, but the export-based Japanese economy has plenty to lose if the tit-for-tat tariff battle escalates, which could snowball into a full-blown global trade war.
“Brexit Day” is creeping ever closer, but talks between Britain and the European Union are largely stalled. Prime Minister May continues to be hampered by serious divisions in her government concerning Brexit, making negotiations with the Europeans all the more difficult. One of the thorniest issues is the future status of the Irish border. Currently, there is no hard border between Northern Ireland and Ireland, but some mechanism will have to be put into place once Britain leaves the European Union. Many ideas have been floated about, and the May government officially proposed a ‘backstop’ plan on Thursday. This means that Britain would remain of the EU customs union up to December 2021, unless the parties reached an alternative arrangement prior to this date. May is calling this proposal a “temporary customs union”, and it remains to be seen if the EU will accept the backstop solution.
