Market movers today
Politics remain in the spotlight, not least with the Brexit negotiations moving into the final hours before the EU summit on Thursday-Friday. As time is short, we remain sceptical that a deal will be reached and even if that is the case, we do not expect a majority in the House of Commons to support it, see Brexit Monitor: 20% probability of a deal but another extension followed by a snap election remains our base case , 13 October. Also, markets will continue to monitor the trade negotiations closely, after China made it clear yesterday that it is less optimistic than the US.
IMF’s annual meeting starts today with the release of the new world economic outlook. Many central bank officials are set to speak in the coming days, both from the Fed and the ECB, as both central banks enter the official silence period later this week.
The ZEW survey is due for release today. It will be interesting to see whether the rebound in expectations and the fall in the current situation continue.
The UK labour market report for August is due out as well. Employment has continued to increase at a decent pace despite slower growth and weaker hiring intentions in surveys and we focus on the momentum (continues further or the labour market is being hit).
Selected market news
Risk sentiment suffered slightly yesterday, sending both equities and yields slightly lower. The Finnish PM Antti Rinne (holder of the rotating EU presidency) said ‘more time’ was needed to reach an agreement about Brexit, see e.g. The Guardian . While it is not our base case, it is still possible for the two sides to reach an agreement before the 31 October deadline. Should the negotiations be close to a deal, the EU can call an extraordinary summit later, which – as reported by the BBC yesterday – it is considering (this would require a short extension allowing time for further negotiations). In addition, the idea of calling a confirmatory referendum, either on Theresa May’s old Brexit deal or PM Johnson’s possible Brexit deal, is gathering attention. Yesterday in the House of Commons, Labour leader Jeremy Corbyn hinted that he too may support a confirmatory referendum saying that people should decide ‘in a final say’, echoing comments from his lieutenants in the Labour Party ( see video on Twitter ). ‘Remain’ would most likely be one of the options on the ballot and given that ‘remain’ is ahead in most polls, markets will likely think this is positive (the GBP also strengthened a bit on the back of Corbyn’s comment). We will monitor this closely in coming days. Our base case remains that the UK is heading for an extension (as pencilled out in the Brexit Delay Bill, which requires the government to ask for an extension on Saturday if no deal is reached) followed by a snap election.
The US took action in Syria as it hiked tariffs on steel to 50% from Turkey and sanctioned three officials in a call for an immediate cease-fire.
