Market movers today
Today, the House of Commons will vote on both a motion to call for snap election and the Brexit extension bill. Given that the opposition has said they want the latter to come into law before supporting a general election, we think the former will be voted down (requires two-third majority!) and the latter will be approved. We still think we are heading for general election but do not think it will be called for until next week (see more under selected market news).
At 10:30 today incoming ECB President Christine Lagarde will face questions from the European Parliament on her appointment. While she signalled policy continuity last week, markets will look out today for more clues on her monetary policy views. ECB Chief Economist Lane will also speak today.
As the Fed enters the blackout period on Saturday, it is going to be interesting to hear from NY Fed President Williams later today. We think Williams (voter, neutral) will support the message from Clarida and Powell, who stated global (political) uncertainty has risen and the global growth has slowed further since the initial cut in July. We do not think Williams will pre-commit to more easing though. Powell is speaking on Friday.
Selected market news
As expected, the Johnson government lost an important vote late last night (328 versus 301, 21 Conservative MPs voted against their own government and will now likely be expelled from the party and deselected as Conservative candidates), which has given the MPs the control of the House of Common’s order paper today. This was the first step towards passing a law forcing the government to ask the EU for an extension in case the politicians have not accepted to leave the EU with or without a deal. As a consequence, PM Boris Johnson said he will now table a motion tomorrow calling for a general election on 15 October. This motion, however, is likely to fall, as the opposition has said it will not accept a general election before the Brexit extension bill has passed (it requires a two-third majority to dissolve Parliament and call for snap election). It is obviously difficult to predict British politics, but we think the extension bill will come into effect before snap election is called early next week, perhaps Monday. It is difficult to see how Boris Johnson can avoid this now that he is governing a minority government. See also our Brexit Montor.
In the US, we had mixed signals from voting FOMC members ahead of the crucial Fed meeting 17-18 September. While Bullard said the Fed should cut rates by 50bp, Rosengren (who dissented the first cut in July) said that the Fed should not ease more here and now although more easing could be necessary if the risks become more pronounced. Rosengren’s hawkish comment came even after the very weak ISM print indicating a much more severe manufacturing recession than expected. US equity markets fell on the back of the numbers and Asian stocks are mixed this morning. We think the Fed is going to continue cutting by 25bp at each meeting without pre-committing to more easing unless we see a more severe impact on the US labour market.
