Blowing up hysteria over Brexit and its consequences, on the eve of the vote in the British Parliament on the agreement with the European Union, seems to have become routine. What did you say last week? One story is worse than the other. But the most successful Mark Carney. The head of the Bank of England seems to have forgotten his recent prophecies about the pound below parity with the dollar and started singing about its decline by 15%. However, he clarified his optimistic forecast regarding the scale of economic losses in the absence of trade agreements with Europe, which he estimates at some 15% of GDP. And, of course, it was necessary to scare everyone with unemployment, which, according to Mark Carney, will quickly grow to almost 10%. And as if by order he was accompanied by a choir from Brussels, broadcasting that Theresa May has more technical opportunities to roll back the situation to the one that was before Brexit. In translation from bureaucratic to human, this means that the British prime minister is proposed to cancel the results of the referendum. What all this will turn out for the British political system, however, no one thought. At least in Brussels. After all, Europeans do not pay taxes to make European officials think. Theresa May herself threatened to resign if the Parliament rejects the proposed agreement, adding once again that the economic part of the agreement will be reached. However, again without specifying when and what they will be. So parliamentarians who feel the warmest feelings for the prime minister and dream of seeing her political corpse are invited to vote for the cat in the bag.
A no less interesting show staged the United States and China. More precisely, it was a one-man show whose role was played by the Americans. At first, everyone was pleased with reports that the two largest economies in the world agreed not to raise reciprocal customs duties. But the very fact that the agreements are neutral, that is, preserving everything in the same places, should have aroused suspicion, since the United States has recently considered such results to be a satisfactory result of negotiations, which are beneficial only to itself. And at the very end of the week everything fell into place. While Donald Trump and Xi Jinping were sitting at the negotiating table in Canada, at the request of the US prosecutor's office, the Chief Financial Officer of Huawei, who was also the daughter of the company's founder, was arrested. If we say that the Chinese are somewhat stunned by such impudence, it will be very mildly said. At the weekend, Beijing simply demanded that its citizen be immediately released. Naturally, such a turn of events greatly frightened everyone, especially the financial market, and stock indices again rushed down. And so confident that even the Fed panicked, hinting that in order to stabilize the financial markets, it may delay the next increase in the refinancing rate.
Now it's time to recall the panic cries of the Federal Reserve system, the reason for which was the arrest of the financial director of the Chinese corporation Huawei, due to which the stock markets confidently went down. Naturally, such statements are not yet a guide to action. But they need to be taken into account. The fact is that if stock prices go down, and the bulk of traders buy them on borrowed funds, the increase in the Fed's refinancing rate will lead to the fact that for many players funding will become more expensive, and they will have to reduce their positions in market, this will accelerate the decline in quotations. The situation is aggravated by the fact that the companies themselves, whose shares are traded on stock exchanges, are debtors, and the money from banks, they often take on the security of their own shares. In the event of a strong decline in their value, banks will demand the closure of previously issued loans, and ahead of schedule, due to the changed conditions. That is, if the stock indices decline and the Fed raises the refinancing rate, the decline increases, and then develops into mass bankruptcies of companies. There is still time before the meeting of the Federal Commission on open market operations, and the markets may have time to stabilize, so there is no reason to panic yet. However, inflation data are coming out this week, and forecasts show that it should fall from 2.5% to 2.2%. The past decline in inflation scared investors, and the Fed had to reassure everyone. However, this time the situation is exacerbated by the not-so-good state of affairs in the financial markets, and many may regard the decline in inflation as a signal that the Fed will postpone the decision until better times. So the dollar will be under pressure simply because of the expectation of bad news.
However, we must admit that the data on inflation in the US this time are not the most important, since in Europe there will be two events that will overshadow everything. In particular, a meeting of the Executive Board of the European Central Bank will be held on Wednesday, following which the program of quantitative easing is supposed to be curtailed. At least that's what Mario Draghi promised us in the summer of this year. However, if in the summer and even at the beginning of autumn all the representatives of the ECB ritually pounded themselves with their heels in the chest and their mother swore that this would be the case, then recently they have carefully avoided the subject. Instead of colorful words about the beautiful future, they now increasingly tell terrible tales about risks and instability. Moreover, the disc was changed immediately, as the next problems with Italy surfaced, which made everyone look more attentively at the state of affairs with the state debts of the countries of the European Union. What he saw did not even disappoint, but scared, because it is difficult to get rid of the thought that in the event of a printing press stopping, many of them would simply go bankrupt. So there is a high probability that Mario Draghi will once again spread his arms and sadly say that he failed and the program will have to be extended until better times. Moreover, such a development is much more likely than keeping the Fed's refinancing rate unchanged. Thus, the single European currency will most likely decline to 1.1225.
But the most spectacular event will take place tomorrow in the British Parliament. It is necessary to stock up on popcorn in advance to have something to eat while sitting on the fence. There is nothing to speculate on the coffee grounds, it is better to be careful, because you can expect anything from these British. Moreover, parliamentarians are extremely tough, and may well replace the agenda for consideration of the issue of trust in the government and the prime minister. This means that tomorrow Theresa May could be asked to leave with things. And this is extremely likely, as parliamentarians do not intend to adopt a political declaration without any specifics about trade relations with the continent. But this is exactly what the agreement is not. And it is not clear whether it will be at all. The current version of the agreement completely suits Europe. And not only Germany, but also countries, with smaller sizes and ambitions. And even if the British Parliament adopts an agreement, which is highly unlikely, optimism will not last long, as it is not clear what the framework of economic interaction between Great Britain and the European Union will be. So the pound will also have a hard time, and, most likely, it will decline to 1.2550.
