Market movers today
Focus is on Brexit negotiations, as today is the last day to reach an agreement ahead of the EU summit starting tomorrow. As obstacles remain, we think a deal is unlikely, but that is not the same as saying the negotiations are breaking down. Our base case remains, however, that we will get another extension followed by a snap election.
Today’s main data release is US retail sales for September. Retail sales have grown for six consecutive months, so we would not be surprised if retail sales disappoint after some strong months. The data release is going to be key for many FOMC members whether to support another cut later this month or not.
Fed’s Kaplan, Evans and Brainard all speak today. The question is whether they are supportive of another Fed cut or not. The Federal Reserve also releases its beige book at 20:00 CEST. ECB’s Knot speaks at 14:30 CEST and Lane speaks at 16:00 CEST.
UK CPI inflation for September is due out today at 10:30 CEST.
Selected market news
Risk sentiment was positive yesterday, which ultimately led to equities up by around 1-1.2% globally and yield up by around 3bp in core European fixed income markets. Optimism about a potential Brexit deal moving closer supported risk assets. Johnson still has a headache though, as DUP sticks to its long-held position as well as the hard-Brexiteers in the ERG group (but the latter has given in to some degree). Our base case remains for an extension and a snap election.
IMF published its new world economic outlook yesterday with a lowering of its global GDP growth estimate to 3% for this year (from 3.3% in April), with a small rebound to 3.4% next year (3.6% in April), with the rebound driven by a number of EM countries. Furthermore, IMF said that global central banks only had ‘limited ammunition’ to fight a recession and that central bank stimuli can only offset part of the damage caused by protectionism. Overall, the IMF struck a generally downbeat tone with significant challenges ahead for the global economy, pointing to primarily trade, geopolitical tensions, no-deal Brexit and persistently weak economic data as triggers.
In the US-China trade war, sentiment continues to suffer from negative headlines after the ‘Phase 1’ trade-deal package this weekend. Overnight, Chinese authorities threatened to retaliate with ‘strong countermeasures’ if the US passes the Hong Kong bill that supports the protesters (which passed through the US House of Representatives yesterday).
The TRY remains under geopolitical pressure although it slightly recovered yesterday from its May 2019 lows. Trump continues to be in dialogue with Erdogan and the current sanctions and Trump’s tonality combined with his actions still look mild. Trump has made some steps in order not to irritate the prevailing domestic opinion in the US.
