Markets
A fragile investor sentiment turned further negative during European dealings today. Stocks suffered a broad-based yet orderly decline amid persistent uncertainty surrounding the dominating trading themes such as the US/Sino trade conflict, Brexit (see below) and the Italian political debacle. Global (core) bonds gained. US yields fell from 2.6 bps (2-yr) to 2.1 bps (10-yr). The 30-yr maturity (-4.2 bps) hit a new all-time low (1.907%). The German yield curve bull flattening continues as yields were unchanged at the short end while declining 2.8 (10-yr) to 5.1 bps (30-yr). Italian BTP’s strongly outperform peers. Markets are clearly confident about talks between Italy’s 5SM and Democratic Party with the latter announcing their support for Conte as PM. The two parties are currently working on a government program which has to be presented to president Matarella later today. The Italian 10-yr yield is testing its record low around 1%. Spreads against Germany drop another 10 bps. Greece’s narrows some 6 bps. With the exception of sterling, FX markets weren’t really that exciting today. EUR/USD again barely budged. The couple declined marginally, trading still close to but below 1.11. A similar story holds for USD/JPY (105.77) and the trade-weighted dollar (98.2).
As calm as EUR/USD traded as wild was today’s ride for sterling. PM Boris Johnson put the cat among the pigeons, saying the government was taking preparations to ask the Queen to prorogue Parliament. Johnson aims to suspend Parliamentary sessions from September 12 until October 14. That would leave pro-European British MP’s with only two weeks left to come up with and approve legislation aimed at ruling out a no-deal Brexit. Besides this “useful political side effect”, the official rationale for the widely criticized move is that under the current government, the legislation program has altered dramatically. Johnson’s team wants to have it outlined during the Queen’s Speech, which requires a formal end (the prorogation) and reopening (by the Speech) of the Parliamentary year. For markets however, Johnson’s move increases the risk of a no-deal Brexit dramatically. Sterling slid with EUR/GBP briefly jumping over 0.91 before trading at around 0.908 at the time of writing. Cable declined to 1.22.
News Headlines
US financial magazine Forbes reports that China plans to issue its own cryptocurrency as early as November 11, the busiest online shopping day. The report adds that the PBOC plans to distribute its cryptocurrency initially through at least 7 institutions, including tech giants Alibaba, Tencent, China UnionPay and four state-owned banks.
The American Petroleum Institute said that stockpiles fell by 11.1m barrels last week, which would be the largest decline since June if confirmed by government figures. OPEC earlier said they expect a significant decrease in global crude stockpiles in H2 2019 after trimming output more than planned. Brent crude rose back above $60/barrel.
