The Financial Times reports that the EU is ready to offer the UK a “bare-bones” UK-wide customs union with the EU, to be included in the legally binding Withdrawal Agreement, in order to resolve the Irish border issue. It would operate until a permanent trade agreement between the UK and EU is agreed. Previously, the EU had said such a UK-wide customs union would have to be in a separate treaty (based on a legal argument that it is outside the scope of Article 50), which would take much longer to conclude as it would have to deal with “level-playing field” concerns, among other things. Therefore, if confirmed, the latest EU proposal would represent a significant concession. Still, it is unclear whether the UK government is ready to accept such a proposal, given that the EU is still insisting on a “backstop to the backstop” whereby only Northern Ireland would remain in the EU customs union (applying the full EU customs code) and the single market for goods. At the same time, Brexiteers have warned they would not back a backstop that could lead the UK becoming indefinitely tied to a customs union. Our view is that the makings of a deal are now close, but it probably will not be done until December given that even a temporary “bare-bones” UK-wide customs union with the EU would take time to conclude.

US employment gains will likely have rebounded in October to 190k, following a softer 134k reading in September. Over the past six months, nonfarm payrolls have expanded by more than 200k per month on average, which is very strong given the tightness of the labor market. The jobless rate will likely remain at an unchanged 3.7%. As usual, swings in the participation rate could affect the monthly unemployment rate readings. Over the medium term, we expect the unemployment rate to trend lower as employment gains continue to outpace increases in the labor force. Average hourly earnings likely rose 0.2% in October, slightly less than the 0.3% seen in September. However, due to a positive base effect – average hourly earnings declined 0.2% in October 2017 – the yoy rate will likely rise to 3.1%, the first reading above 3% since 2009.

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