Market movers today
With no major economic releases today, market focus will be on political developments around the Brexit negotiations and US-China trade dispute as well as ECB speeches.
With Draghi yesterday joining the hawkish chorus from the ECB over the past week, the speeches by Praet and Coeuré today will be scrutinised for nuances in their views on the euro area economy and Draghi’s statement about a ‘relatively vigorous pick-up in underlying inflation’ .
The trade dispute between China and the US could enter a new phase anytime, as Trump called for tariffs on the remaining USD267bn of imports from China after the Chinese government retaliated against Trump’s second round of tariffs.
Swedish parliament may hold a Prime Minister confidence vote today.
Selected market news
Markets reacted yesterday on the back of more hawkish ECB comments from President Draghi. Draghi said that the ECB sees ‘ a relatively vigorous pick-up in underlying inflation’ , which is really hawkish from Draghi, as he never chooses words by accident. On the ECB’s forward guidance, he said that ‘ first, the ‘through the summer of 2019′ formulation is a calendar-based element, which refers to when we anticipate conditions that might warrant a first rate increase’ which means the ECB meeting in September next year will definitely be a live meeting (our base case is that the first hike arrives in December 2019). Markets sent European yields and EUR/USD higher on the back of his comments.
After the Salzburg meeting ended terribly, attempts to kick-start the Brexit negotiations have started. German Chancellor Angela Merkel said the EU and the UK must lay out a ‘fundamental vision’ for the future relationship by November and that while trade should remain as frictionless as possible, it was difficult to avoid some control. Merkel also hinted that technological solutions may help resolve the Irish border issue.
Trump signed his first renegotiated trade deal with South Korea yesterday. While trade analysts say the changes and hence the economic impact is small, it adds to the impression that the Trump administration is trying to close the negotiations with other countries so that it can focus on China, with whom the US has the largest trade deficit. The deal does not change our view that there is a risk the US-China trade conflict may escalate further and that it may get worse before it gets better. It is difficult to see a solution before we are well into 2019.
