Market movers today
The main event today will be the release of the FOMC meeting minutes in the US. We will be interested to hear the different stances within the Fed on further hikes now it has hinted it is ‘patient’ about raising rates again. Furthermore, we will monitor any insights it might have on how it plans the balance sheet reduction.
Potential Brexit news as May meets Juncker in Brussels today. May’s camp has played up, whereas Juncker has played down the importance of the meeting.
Selected market news
Market anxiety eases further. European and US equity markets closed essentially flat. Asian bourses are trading up. The S&P 500 closed up 0.15%, which drove down its derived measure of implied volatility, the VIX index to 14.88, which is the lowest level since October 2018. The volatility index is often used as a barometer of market anxiety. Treasury yields fell across the curve with the long end underperforming.
Elections driving trade results. Bernie Saunders announced he will run in the 2020 U.S. presidential race. The beginning of presidential election campaigning is a key driver towards a deal in trade negotiations between the US and China. Incidentally Trump is quoted as saying that the 1 st of March is not a “magical date.” The will to a deal is evident. Bloomberg further reported that the US wants the Yuan tied into negotiations, in order to counter potential currency devaluation.
Prime Minister Theresa May heads for Brussels today to deal with Juncker. Her trip follows yet another defeat, as there was no support for her Brexit statement (the hard Brexiteers abstained). While the vote was only indicative and not legally-binding, it has probably made life more difficult for May, as she no longer can show she has a united party behind her. EU is not willing to negotiate and make concessions if they do not know whether it will be sufficient. May has promised another vote by the end of February but she is unlikely to have anything new to bring forward then.
We have to get very close to the 29 March deadline (remember there is an EU summit on 21-22 March) or a small majority in the Commons will force May to ask for an extension of Article 50 by the end of this month. Pressure is rising on all. We stick to our view that the two most likely outcomes are May’s deal passing eventually (40%) or a second EU referendum (30%). A no deal scenario would probably only happen “by accident” and we attach a 15% probability to that scenario.
European tier 2 macro prints were mixed. German ZEW expectations edged up from -15.0 to -13.4 in February in a sign of stabilisation. A recession leaden Italy suffered weak industrial orders in December with orders declining -1.8% m/m. The print points to protracted weakness in Q1.
