With U.S. and Canadian markets closed overnight for Labor Day, it was British Prime Minister Boris Johnson that provided a fireworks display that Guy Fawkes would be proud of. With Parliament due to return from their summer recess today before being suspended from next week, PM Johnson has threatened to call a general election on October 14th if Parliament passes legislation to derail his Brexit strategy today.
It comes hard on the heels of his announcement Sunday that Tory MP’s who vote against the government on Brexit will “lose the whip.” In plain English, that means they will be expelled from the parliamentary party and barred from standing for their seats as Conservatives should an election happen. To paraphrase Donald Trump, “your fired.”
I doubt you will find anyone in Britain from either side of the debate, who believes that Parliament has covered itself in glory over these past two years. In fact, most probably wish that Guy Fawkes has managed to finish the job all those centuries ago, after three years of Brexit dithering. PM Johson’s admirably machiavellian manoeuvres, appear to be an all-in bet to end the impasse, one way or another, and secure a clear mandate to exit Europe on October 31st.
With electoral uncertainty and the prospects of a hard Brexit both rising exponentially, the British Pound was punished, falling 100 points to 1.2065 where it remains this morning. In contrast, international equity investors were delighted at the pounds fall, swooping in to scoop up U.K. blue-chip stocks substantially cheaper in the dollar and Euro terms, than the day before. The FTSE 100 rose 1.03%, making it the best performing market in Europe on the day by far.
One cautionary note, however, ahead of what will be another exciting day in British politics is this. Should an election be called tomorrow, what would be the effect on the GBP and the FTSE of a Jeremy Corbyn-led Labour Government? I would be calling the movie “A Nightmare On Downing Street.” Drain the swamp at your peril Mr Johnson.
After an otherwise quiet holiday affected session, U.S. equity futures slid slightly lower on thin volumes overnight. China’s official complaint to the WTO over U.S. tariffs.markets had little effect.
Asia will be focusing on the RBA rate decision at 1230 SGT. Ahead of this are two other key Australian data points, retail sales (0.20% exp) and the current account for Q2 (+1.2 bio exp). A lower print from retail sales, in particular, would add to the general gloom of recent Australia data, increasing the calls for further RBA easing. The RBA is unlikely to grant the doves their wish today, preferring to stay on hold with an easing bias, keeping their powder dry for rainier days ahead.
Vietnam and Malaysian Markit PMI’s have just been released lower than forecast, continuing the poor regional showing by the PMI’s yesterday. South Korean inflation posted a record low of zero per cent this morning as Q2 GDP was revised lower to 2.0% increasing the odds of further easing by the BoK at their next meeting. Investors are receiving confirmatory signs that Asia is slowing, in the face of a continued impasse on trade by China and the U.S.
Equities
With New York closed, U.S. equity index futures eased on low volumes with the S&P E-mini falling 0.90%. Asia seems to have taken that with a grain of salt with early trading on the Nikkei 225 and ASX 200 showing only marginally lower.
With the data calendar ex-Australia very light today in Asia today, regional markets will likely edge gently lower. The data that has dribbled in this morning implies that Asia continues to slow as trade tensions drag on with no sign of a date being set for the next U.S. China trade meeting.
Currencies
The British Pound was the notable mover overnight on Brexit election threats and militant Parliament returning to work today. The GBP fell 0.80% to 1.2065 with psychological support looming at 1.2000. It will probably take a defeat in the Commons today to seriously threaten the 1.2000 regions though.
Elsewhere, the dollar index rose 0.11% overnight to 98.92 with FX markets content to sit on the sidelines due to the North American holiday. The dollar is gently higher in Asia this morning but overall, and headline bombs aside, we expect a quiet range trading session.
Oil
With physical markets closed crude, oil futures fell modestly on low volumes. The unexpected increase in OPEC production released Friday; the weak data released from Asia and the possible adverse consumption effects of Hurricane Dorian will likely conspire to cap gains on Brent and WTI today.
Brent crude is 0.15% higher at $59.00 a barrel, and WTI is trading is around 0.30% higher at $54.80 a barrel. Both contracts are seeing some mild profit-taking.
Gold
Gold rose 0.60% to $1529.00 an ounce overnight as the yellow metal continues to find enthusiastic haven buyers on any significant dip. Gold has eased slightly to $1527.00 an ounce in early trading but has technical support layered at $1520.00, $1490.00 and $1480.00. Initial resistance is at $1534.00 an ounce.
Until we see a significant easing in trade tensions combined with an improvement in global economic data, gold will continue to benefit from both haven flows and portfolio adjustment in the face of further possible central bank easing.
