espite the near-certainty that Boris Johnson’s withdrawal agreement will pass through the House of Commons later this week following last week’s election result, investors have begun worrying about Brexit again. The main rationale for this is the clause that the Prime Minister plans to include in the Brexit bill that would rule out the possibility of extending the transition period beyond the existing end of December 2020 deadline.

This would, of course, only allow around one year for negotiations on the full deal to take place. Should that not prove sufficient time, a cliff-edge exit at the end of next year may be back on the table. Johnson plans to bring the vote on the Brexit Withdrawal Agreement Bill to parliament on Friday. As mentioned, this is almost certain to pass, with a few amendments.

Aforementioned concerns over Brexit have dragged sterling back below the 1.31 mark, around the level it was prior to last Thursday’s election. This marks a near three percent retracement from Thursday night’s highs. While attention has been firmly on politics, yesterday’s mixed UK labour report far from helped the currency. Unemployment held firm at multi-decade lows, although there was a decline in earnings growth incl. bonuses to 3.2% year-on-year, its lowest level since September 2018.

Next up in the UK will be this morning’s inflation numbers, with retail sales and the Bank of England’s policy announcement to follow on Thursday.

Strong German data allays slowdown fears

We had some more positive sentiment data out of Germany this morning that provided further evidence that a pick up in activity in Europe’s largest economy may be on the cards in the coming months. The Ifo business climate index rose back up to 96.3 in December, its highest level since June. The expectations and current assessment indices similarly surprised to the upside.

Despite the positive news, the euro continues to trade relatively rangebound just above the 1.11 mark versus the dollar. The resilience shown by the euro so far this week is somewhat surprising given recent trade comments and strong data out of the US. US trade representative Robert Lighthizer warned yesterday that tariffs may be increased on European goods in order to lower the country’s massive trade imbalance with the continent. Data out of the US on Tuesday also allayed fears regarding the possibility of more Fed cuts in H1 2020. Industrial production rose more than one percent last month, while JOLTs job openings also surprised to the upside.

Next up will be this morning’s Eurozone inflation numbers and, as mentioned yesterday, continued developments on the Trump impeachment hearing.