Markets
Waiting in vain, pt. 2. An urgent debate on Syria hijacked UK parliament’s agenda, pushing brexit debates – key for trading – after EU close. The outcome is a second straight trading session dominated by choppy trading. Contrary to yesterday’s more optimistic view, investors’ took a more guarded approach today. Brexit fog is dissipating. Johnson might get the narrow support to get approval for his withdrawal bill, but MP’s are unlikely to give in to his hasty timetable to pass every piece of legislation between now and Thursday. Johnson already suggested he will pull the brexitdeal if they reject his tight schedule. On top, parliament has plenty of amendments ready to alter Johnson’s deal. To give an idea: Labour plans to table an amendment that would keep the UK in a customs union with the EU beyond 2020. They also want to put Johnson’s brexitdeal to a public vote and let parliament have the ability to force the government to prolong the transition period beyond 2020 if the EU and UK haven’t agreed on a future trade relationship post Brexit. Main conclusion is that the October 31 brexit deadline again seems hard to achieve. EUR/GBP returned above the 0.86 big figure with EUR/USD trading around 1.1130 from an 1.1150 open. German and US yield curves bull flattened. Changes on the German yield curve ranged between +0.5 bps (2-yr) and -4.8 bps (30-yr). US yields fall by 2.3 bps (2-yr) to 3.3 bps (30-yr). 10-yr yield spread changes vs Germany are barely changed with Italy (-6 bps) outperforming. Stock markets float between narrow gains and losses. The eco calendar only contained second tier data up until now. That’s only going to change on Thursday with EMU PMI’s.
News Headlines
The ECB’s bank lending survey showed that euro zone banks tightened overall terms and conditions agreed on loans to companies and home loans whereas credit standards, or banks’ internal criteria for loan approvals in Q3 eased for business and mortgage loans. For Q4, banks expect credit standards to remain unchanged. This comes as a relief for policymakers amid slowing economic growth and rising recession fears.
Germany’s budget surplus was 1.7% of the country’s GDP in Q2, down from 2% in Q1. Germany has been running large budget surpluses for years under its “Schwarze Null” policy and is now under pressure to adopt fiscal policy to boost domestic and global economic growth.
The Hungarian central bank (MNB) kept its policy rates (overnight deposit rate -0.05% & benchmark rate 0.9%) unchanged before a December policy review. The MNB highlights that the significantly lower-than-expected core inflation excluding indirect tax effects over the summer months and the effects of the slowdown in European economic activity indicate a strengthening in downside risks to the longer-term outlook for inflation. Economic growth is expected to slow in the coming quarters.
The Belgian government submitted a draft budget to the EU in which government spending increases by 4.7%, thereby breaching the maximum permitted increase of 1.6%. In a letter, the European Commission urges the country to increase efforts to reduce the structural budget deficit. Belgium’s finance minister, Alexander De Croo, hopes that the EU letter is a wake-up call to speed up government formation.
