Market movers today
Focus is again on Brexit with the UK House of Commons returning to session. It looks like we are heading for a snap election sooner than expected. Today there will be an emergency debate on a bill trying to force PM Johnson to ask and accept another Brexit extension until 31 January in case no deal is reached no later than at the EU summit 17-18 October. A government official has said PM Johnson will start the process for 14 October general election if he loses the vote (needs two-third majority). PM Johnson will make a public statement at 19:00 CEST.
A key economic release today is the US ISM manufacturing survey for August. Weighted regional PMIs suggest that ISM manufacturing is set to come in stronger, but Markit PMI suggests a decline. We expect ISM manufacturing to fall slightly to 50.8 but given the mixed signals it is not a high conviction call.
The ISM survey is one out of a few important gauges for Fed policy makers ahead of the crucial September meeting in two weeks. Tonight we will hear Fed’s Rosengren’s (voter, hawk, dissented first cut) views on the US economy and Fed policy.
Selected market news
Developments in the UK will likely set the agenda in markets today. In our view, the most likely scenario is an election soon. EUR/GBP remains fairly stable for now, though, trading below 91, still some way from the peak in early August above 93.
The biggest move in markets this week has been the USD. The trade weighed USD keeps pushing higher to the strongest level in two and a half years. Bond and stock markets are mostly treading water awaiting new developments in the US-China trade war and more signals on the state of the global economy and the extent of policy stimulus. The ISM manufacturing this afternoon will shed light on the state of the US economy after PMIs worldwide yesterday continued to paint a fairly bleak picture of the global economy.
According to Bloomberg, the US and China struggle to get a face-to-face meeting in place in September, as the new round of tariffs imposed on Sunday is hurting trust between the two sides. Washington did not meet a Chinese request to delay the tariff hike on 1 September. The fact that the two sides struggle to agree even on the conditions for a new meeting is in our view indicative of how far the two sides are from each other despite US President Donald Trump’s frequent messages that the talks are going fine. Trust may have been hampered further by Trump referring to a call from Beijing negotiators that apparently never took place. For now the correspondence is in our view more a matter of damage control and avoiding further escalation than getting any closer to a deal.
In Hong Kong the protests have become more violent again lately. The police is now taking a harsher stance on the most radical protesters using mass arrests. So far there is no sign that Beijing is set to move in forces and we believe it will only happen if things get completely out of control.
