Market movers today
Following Prime Minister Boris Johnson’s decision to prorogue the UK parliament from mid-September to mid-October, financial markets will monitor very closely any signals from the UK parliamentarians and the likelihood of the opposition getting a no-confidence vote through next week.
We also keep a close eye on the political negotiations in Italy.
In the euro area, we get various measures of business confidence, which will provide important clues about how the recent escalation of the trade war in late July and negative market developments have affected business confidence.
In the Scandi region, there is a couple of important releases, notably Norway mainland GDP, which we expect expanded 0.8% q/q in Q2, and the Swedish NIER’s monthly confidence survey. For more details see page two.
Overnight in Japan, we get the July industrial production data. The manufacturing sector is still the one suffering the most from weaker global demand. PMIs point towards another weak month. On the same day, retail sales tick in. Domestic demand has remained fairly robust, supported by a tight labour market.
Selected market news
Yesterday’s big news was that PM Boris Johnson is proroguing parliament, implying that the House of Commons will not sit from mid-September to 14 October. The current parliamentary session started in 2017 and a new Queen’s Speech, which marks a new parliamentary session, is long overdue. While Boris Johnson argues that he needs a new Queen’s Speech to set out his new government’s political agenda, the decision should be seen in the light of Brexit. The prorogation means it becomes more difficult for the politicians to block a no-deal Brexit through legislation, as parliament does not sit (i.e. cannot pass laws). Right now, the easiest way forward for the politicians who want to avoid a no-deal Brexit is to bring the government down in a no-confidence vote. However, this is easier said than done. It is not straightforward for the moderate Conservatives to vote against their own government. The move likely increases the chance of both a no-deal Brexit and a general election. The next important question is whether the positive talks between EU27 and the UK will continue. The House of Commons returns in session on 3 September, so we are heading for a very interesting week ahead of the suspension.
On the trade war, Treasury Secretary Mnuchin has said that the US administration is expecting Chinese officials to visit Washington but would not say whether the planned meetings in Septembers would still take place after the latest escalation. He also said that the US does not intend to intervene in the dollar ‘at this time’. White House trade adviser Navarro played down the expectations of a quick solution to the dispute.
Both Fed’s Daly and Kaplan were open-minded to further Fed easing due to high uncertainty, slower global growth and low inflation, Fed’s Barkin was less convinced. None of them are voting but the Fed seems to lean towards more cuts despite disagreements.
