Markets
Welcome to a rather uninspiring start of the week where volumes were again low, but sentiment upbeat. For the first observation we eye the backloaded economic calendar. Investors prefer not to go all in ahead of the ECB and PMI business confidence due on Thursday. Brexit is the cause for today’s constructive risk climate. Letwin’s amendment thwarted PM Johnson’s plan to put his Brexit deal to a vote on Saturday by forcing the government to install key post-Brexit legislation first before voting (and approving?!) Johnson’s Brexit bill. It’s another hurdle for a no-deal scenario to take place. UK’s prime minister already said he wants to present the withdrawal bill to parliament again today but UK Speaker of the House Bercow might decide otherwise. Bercow is due to make a statement at 4:30 pm. If that were to happen, Johnson suggested that he would try to push through the necessary Brexit legislation as required by the Letwin amendment, starting tomorrow. For the PM it’s imperative to do this as swiftly as possible in order to leave the EU on October 31, a vow he intends to keep. That’s ambitious yet not impossible given the fact that many MP’s (even from Labour) have already voiced support. Should he fail however, the EU could (and probably will) approve the Brexit delay Johnson was legally obliged to ask for. That would kick the can further down the road at least until January 2020 and longer if needed (some EU officials hinted at an extension until mid-2020). Either way, despite the fact there’s still uncertainty lingering, the odds clearly have tilted from a no-deal Brexit in favour of an orderly leave. It’s the main reason for today’s bullish sentiment across financial markets. UK yields jump 1 bp (2-yr) to 5 bps (30-yr). The US yield curve bear steepens with yield changes varying from +2 bps (2-yr) to +3.5 bps (30-yr). German yields rise up to 4 bps at the very long end of the curve. Spreads vs. Germany’s 10y yield mostly narrow with Ireland (-3 bps) outperforming. EUR/USD’s early upleg halted at around 1.118 before returning near opening levels at 1.116. USD/JPY holds near recent highs near 108.50 which is currently acting as a minor resistance. The pound sterling is today’s outperformer on FX markets. EUR/GBP is extensively testing the 0.86 level. That’s the lowest since early May. The couple dipped to an intraday low of 0.8579 but is filling bids close to 0.86 at the time of writing. Cable is equally hovering near a six month high around 1.30. Parliamentary approval (or signs thereof) of the Withdrawal Agreement Bill is the trigger needed for a sustained break.
News Headlines
Belgian consumer confidence rebounded from a 3-yr low in October (-8 from -11) as households turned less pessimistic about the economic outlook (-16 from -22) and future unemployment (12 from 18). As far as their personal situation is concerned, households surveyed indicated that their financial situation will improve in the coming months as well (-2 from -4). Nevertheless, they are expecting to save significantly less (-4 from -1).
The German Bundesbank reported in its monthly bulletin that economic output could have shrunk slightly again in the third quarter of 2019. A recession in the sense of a significant, broader and longer-lasting decline in output with underutilized capacity is currently not in the Bundesbank’s view though. The income prospects for consumers continue to be favourable due to the ongoing good situation in the labour market.
Turkey said Kurdish fighters have to leave the 120-kilometer area between two Syrian border towns by late Tuesday as it seeks to create a so-called “safe zone”. The 120-hour ceasefire in the Turkish-Syrian conflict is due to end on Tuesday night.
