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Johnson And Juncker Put Pen To Paper

Market movers today

Today, we continue to monitor British politics and count how many votes will get behind the deal at tomorrow’s vote in the House of Commons. After DUP rejected the deal yesterday, we think it is very difficult for Johnson to get it through Parliament and our base case remains another extension followed by a snap election. However, it may be closer than ever as the FT counted that Johnson is two votes short of getting the deal through the House of Commons, while Sky counted four votes short.

Otherwise, it is a quiet day today, at least on paper. Most interesting are the central bank speeches. The Fed enters its blackout period tomorrow so we listen closely to what Fed’s Kaplan, George and Clarida have to say today. We continue to believe the Fed will cut at its upcoming meeting. Investors agree with a cut priced in by 85% probability. Bank of England’s governor Carney and BoE’s Cuniffe speak tonight, as Bank of England seems to be moving in a more dovish direction.

Selected market news

Yesterday, the UK and the EU27 agreed on a new Brexit deal, which will now be put forward to the House of Commons tomorrow, Saturday. As DUP has already rejected voting in favour of the deal, it seems difficult for PM Johnson to get it through Parliament. We still doubt the pro-Brexit Labour MPs will vote in favour of a deal, which is harder than the one put forward by Theresa May. Our base case remains another extension followed by a snap election. The EU has on several occasions made it clear that a no-deal Brexit will not be its choice despite the Brexit fatigue in Brussels. The good news is that while the deal may be rejected tomorrow, the tail risk of a no-deal Brexit has diminished further. While we previously feared a Johnson victory in a snap election would lead us to a no-deal Brexit, this is no longer the case. See Brexit Monitor: New Brexit deal but DUP still rejects it – tail risk of no deal Brexit has diminished further, 17 October. The Leader of the House of Commons, Jacob Rees-Mogg, informed that the house sits tomorrow at 10:30 CEST and expects proceedings to be wound up at 15:30 CEST.

The Swedish labour market report did not correct as we expected, as the unemployment rate held steady at 7.4%. We expect the Riksbank to realise the deterioration in economic fundamentals and deliver at least a verbal delay of the intended hike until February but possibly also shift the repo rate path. We still expect a cut in February.

Late yesterday, US VP Mike Pence agreed on a ceasefire with Turkey on the cross-border attack in Syria under certain terms, which reduces the near-term tensions somewhat.

Overnight, Chinese GDP was released at a 30Y low of 6%. However, the more timely PMI indicators show that we have already reached the trough in the Chinese business cycle.

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