Brexit dominates events this week with the key UK House of Commons vote due on Tuesday night, our time and bound to set a historic precedent, no matter the outcome.
The decision will have a dramatic impact on markets no-matter-what. A no vote will trigger a surge of uncertainty, especially in currencies and equities. A yes vote should see a bit more certainty, but don’t be surprised if there are a few sessions of volatile dealings.
Tuesday’s vote will either see the Brexit deal Prime Minister Theresa May has negotiated with the EU, approved or defeated. A defeat would leave the UK with the rising possibility of an election, a new agreement, or a hard Brexit with no deal – a situation that would badly damage the economy.
But there is a rising chance a second referendum could be held before next March – a vote that could see the leave vote of June 2016 reversed, which would in turn set up a series of fraught situations between Leavers and Remainers. Either way, the vote and its result will trigger years of bitterness in the UK.
Mrs. May suffered two defeats in the UK parliament last week after her government was found in contempt for its failure to hand over its Brexit legal advice and after MPs backed a proposal that parliament should have a free hand to determine what happens next if they reject her compromise Brexit deal.
Investors will also keep an eye on UK GDP and the labour market report due this week – both could contain warnings for what might come after March next year.
Also keeping a close eye on the UK vote will be the European Central Bank which meets Thursday.
While it is expected to confirm that it will end quantitative easing this month, the UK vote is likely to see questions asked about stability in European financial markets up to and past next March.
December business conditions surveys are out for Europe on Friday (and other economies).
In the US, the focus will be back to inflation with the consumer price inflation data due Wednesday. it is expected to have been flat in November thanks to the oil price slide and annual headline inflation will dip back to 2.2% from 2.5%.
The AMP’s Chief Economist, Dr. Shane Oliver says core inflation is expected to remain around 2.1% year on year.
Other US data is expected expect to see strong job openings (tonight), continued high small business optimism (Tuesday) and retail sales and industrial production (Friday) to remain strong. US business conditions surveys for December (also due Friday) are likely to remain solid.
In Japan, the Tankan business survey (on Friday) is likely to show some weakening in conditions.
Chinese economic data for November due to be released on Friday is expected to show growth in industrial production remaining around 5.9% year on year but a pick up in investment to 5.9% and a pick up in retail sales to around 8.8%, according to Dr. Oliver.
In Australia, Dr. Oliver says we can expect to see another fall in housing finance (today), ABS data on Tuesday to show a 1.7% fall in house prices for the September quarter consistent with private sector surveys and soft readings for business and consumer confidence (Tuesday and Wednesday from NAB and Westpac).
The Australian annual meeting season is all but over with the September 30 bank meetings starting.
The week’s meetings include those of Macquarie Group, Westpac and Suncorp.
On Friday, S&P/ASX will announce the pending changes to index components for this quarter.
