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Trade Angst Hunts Global Markets

Market movers today

In the euro area, service PMI readings in Italy and Spain for November are due as well as retail sales for the eurozone. These numbers will provide interesting clues about the strength of the eurozone economy. Activity remains in hibernation.

In the UK, all eyes are on the debate in the House of Commons and the troubles of the Theresa May government in pushing through the Brexit deal.

I n Poland, the central bank rate decision is due, where we expect no change but watch out for the press conference later in the afternoon.

US markets are closed on Wednesday, as it has been declared a national day of mourning following the death of former President George H.W. Bush. That also means that Powell’s address to the US Congress Joint Economic Committee is postponed.

Selected market news

US stocks fell more than 3% on Tuesday as investor optimism over a trade resolution began to fade. The sour market sentiment was fuelled by Trump tweeting warnings that he would revert to tariffs if the two sides could not resolve their differences. The US 10-year bond yield fell to its lowest point since mid-September. A string of comments from the Chinese authorities, however, lifted market sentiment in the early morning Asian trading session. The comments indicated that the trade meeting at the G20 meeting was ‘very successful’, that China will implement specific items agreed upon as soon as possible and that the US and China will proactively push forward negotiations within the 90-day time frame. The Chinese currency strengthened the most since 2005 after the weekend’s trade discussion, but weakened somewhat overnight. See China Market Monitor – Biggest two-day drop in USD/CNY since 2005 , 4 December 2018.

The first day of the five-day long Brexit debate was quite eventful. Early yesterday, the European Court of Justice ruled that the UK can unilaterally revoke the Article 50 notification (which started the Brexit clock), as long as it has parliamentary backing (given the notification itself required approval in the House of Commons). In the House of Commons, PM Theresa May lost three votes. Without going into too many details, the most important one gives the House of Commons more power over what happens in case May’s deal fails on Tuesday, which seems very likely at this point. While May’s defeats show party discipline in the Conservative Party is low, it may actually turn out to be positive for Theresa May. There is no majority for a ‘no deal’ Brexit in the House of Commons and any changes to the Brexit deal will likely be in a softer direction. This makes Theresa May’s case for ‘my deal or risk softer/no Brexit’ more credible, which may eventually convince some of the hardliners to vote in favour of her deal in a second attempt. Moderate Conservatives have warned the hardliners about this for a long time.

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